The Mediating Effect of Financial Performance on the Relationship between Shariah Supervisory Board Effectiveness, Intellectual Capital and Corporate Social Responsibility, of Islamic Banks in Gulf Cooperation Council Countries

Abstract

The objective of this study was to determine the influence of Shariah Supervisory Board Effectiveness (SSBE) and Intellectual Capital (IC) on Corporate Social Responsibility (CSR) among 36 Islamic banks in Gulf Cooperation Council Countries (GCC) over the period of 2007-2011. Additionally, this study was aimed to identify the significance of financial performance (ROA, ROE) as mediator in the relationship between Shariah Supervisory Board Effectiveness (SSBE), Intellectual Capital (IC) and Corporate Social Responsibility (CSR). For the purpose of data analysis and hypotheses testing, several statistical methods such as multiple regression analysis were utilized to understand the variables. The results of this study reported that SSBE, Capital Employee Efficiency (CEE) and Structure Capital Efficiency (SCE) of Islamic banks positively influenced CSR. However, Human Capital Efficiency (HCE) did not influence CSR. The results of hierarchical multiple regression indicate that financial performance (ROA, ROE) was found to be a significant mediating factor for the relationship between SSBE, CEE, and SCE, and CSR in Islamic banks. The relationship between SSBE, IC, financial performance (ROA, ROE) and CSR suggested that it may be beneficial to the management of Islamic banks to increase CSR as discussed. Limitations and recommendations for future research were also highlighted.

Characteristics of Shar¯ı‘ah Supervisory Board, Corporate Governance Mechanisms and Efficiency of Islamic Banks: Evidence from Listed Banks in Asia

“…One reason is that the qualified members are seen as a strategic resource by the firms (Ingley & Walt, 2001). Musibah and Alfattani (2014) state that high level of SSB members' education leads to high profitability. SSBs with members having doctorate or some other higher education degree are thought to be better versed in Islamic finance and banking fields as compared to those SSBs where members lack academic qualification or degree in Sharī'ah-related disciplines (Farook et al, 2011;Rahman & Bukair, 2013).…”

What Factors Cause the Disclosure of Islamic Social Reporting?

“…Intellectual capital has an influential role was positive with the CSR, so that every element of Intellectual Capital shows that there is influence by the CSR [13]. The role of intellectual property itself as material considerations regarding the role of increasing resources in the company's financial activity and financial performance [14]. The higher the Intellectual Capital of the company then owned the greater also the company's ability to grab the competitive advantage in the company, including in terms of social responsibility and the environment [14].…”

“…The role of intellectual property itself as material considerations regarding the role of increasing resources in the company's financial activity and financial performance [14]. The higher the Intellectual Capital of the company then owned the greater also the company's ability to grab the competitive advantage in the company, including in terms of social responsibility and the environment [14]. Thus the second hypothesis in this study are: H2: Intellectual Capital disclosure level against positive influential Islamic Social Reporting Profitability is a company's ability in generating profits, so as to enhance the value of shareholders.…”

The Sharia Supervisory Board and Corporate Social Responsibility Disclosure: A Sharia Perspective in Indonesia

“…This is indicated by the p-value of 0.037, which is smaller than 0.05. Therefore, the first hypothesis mentioning that the SSB has a positive influence on the CSR disclosure of sharia banks in Indonesia is supporting Bukair and Rahma (2015); Musibah and Alfattani (2014). The result of a direct effect test of SSB on CSR disclosure shows a positive and significant influence on CSR.…”

“…This shows that the practice of corporate governance represented by the SSB will generate higher financial performance and corporate social responsibility. Their results showed that there was a positive relationship between good corporate governance and company performance (Mai, 2017;Musibah & Alfattani, 2014).…”