The impact of Shariah Advisory Board characteristics on the financial performance of Islamic banks

Abstract

Theoretical approaches and demonstrated repertoires in the Islamic finance literature have formed a divergent and inconsistent system that did not truly value the importance of the Shariah Advisory Board’s quality and practices. The real impacts generated by the Shariah Advisory Board on the Islamic banks’ financial performance have not yet been thoroughly investigated in detail. While these impacts need the development of a metrological, dynamic, and methodological investigation, we delved into the specific effect of Shariah Advisory Board on the Islamic banks’ financial performance in all continents. To explore the relationship between the selected variables through the application of the fixed and random effects method, we used 180 Islamic banks from 56 countries during the period (2010–2019). The empirical results revealed that the Shariah Advisory Board size, the number of meetings and the presence of Shariah advisers improved the Islamic banks’ financial performance of Islamic banks. However, the presence of financial or accounting experts in the Shariah Advisory Board deteriorated their financial performance. Because the real impacts generated by the Shariah Advisory Board on the Islamic banks’ financial performance are not yet investigated in detail, we analyzed not only the practical symptoms of the Shariah Advisory Board’s effects on the Islamic banks’ financial performance, but also, we tried to solve the ambiguity, and we provide the first detailed analysis that concentrated on the impacts of the determinants’ quality of the Shariah Advisory Board on the Islamic banks’ financial performance.

Keywords:

• Financial performance (FP)
• Islamic Banks (IBs)
• Shariah Advisory Board (SAB)
• financial stability period

JEL classification:

• codes: F30
• G21
• G29
• G30

PUBLIC INTEREST STATEMENT

The purpose is to detect precisely the Shariah Advisory Board’s (SAB) strengths and weaknesses which can help Islamic Banks (IBs) to maximize their Financial Performance (FP). For that, in this study, we attempt to investigate the ambiguity of previous research on the impact of the SAB on the IBs’ FP over an important period (2010–2019) using an important sample (180 IBs), which are located in an important number of regions (56 countries). It has many implications for IBs and investors who operate with them to design their investments and plan their financial strategies. Furthermore, our results allow customers and IBs’ financial information users to follow the evolution of their financial situations through the quality of their SABs.

Acknowledgements

We would like to thank the journal editors, especially the anonymous reviewers for their evaluation of this paper.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Data Availability

The scraped data are available in annual reports published on the website of each bank and from the Datastream database available at: https://infobase.thomsonreuters.com/infobase/login/?next=/infobase/

Notes

1. A.A.O.I.F.I.: Accounting and Auditing Organization for Islamic Financial Institutions.

2. BOD: Board Of Directors.

3. ICU: Indonesian Council of Ulemas.

4. I.F.S.B.: Islamic Financial Services Board.

5. I.A.I.B.: International Association of Islamic Banks.

6. Saudi Arabia (9), Pakistan (8), Iran (8), Malaysia (7), Afghanistan (6), Bahrain (6), Qatar (6), Kuwait (6), United Kingdom (5), United Arab Emirates (5),Sudan (5), Yemen (5), Turkey (5), Bahamas (4), Jordan (4), Egypt (4), Singapore (4), Morocco (4), Iraq (4), Switzerland (4), Bangladesh (4), Indonesia (4), Kazakhstan (3), Algeria (3), Tajikistan (3),Germany (3), Brunei Darussalam (3), Senegal (3), Philippines (3), Ireland (3), Oman (3), USA (2), France (2), Mauritania (2), Libya (2), India (2), Tunisia (2), Luxembourg (2), Guinea (2), Nigeria (2), Lebanon (2), Australia (2), Sri Lanka (1), South Africa (1), Russia (1), Niger (1), Canada (1), Mali (1), Thailand (1), Djibouti (1), Gambia (1), Denmark (1), Albania (1), Italy (1), Kenya (1), and Somalia (1).

7. PLS: Profit and Loss Sharing

Additional information

Funding

The authors declare that this article has been written for purely scientific purposes and not for profit purposes. We did not receive funding from anybody to carry out this study.

Notes on contributors

Achraf Haddad

Achraf Haddad (Corresponding Author) is a Doctor of Financial and Accounting Methods. He is now a Teacher of higher education at the Higher Institute of Finance and Taxation of Sousse (Department of Accounting and Finance), University of Sousse, Tunisia. Furthermore, he is a Researcher at the Laboratory of Governance, Finance and Accounting at the Faculty of Economic Sciences and Management of Sfax, University of Sfax, Tunisia. His main research interests include corporate finance, behavioral finance, international finance, Islamic finance, earnings management, accounting, accounting information quality, financial accounting, value relevance, auditing, and corporate governance.

Mohamed Naceur Souissi

Mohamed Naceur Souissi is an Assistant Professor of Accounting and Finance and an Internship Director at the Higher Institute of Business Administration of Sfax (Department of Accounting and Finance), University of Sfax, Tunisia. He is a Researcher at the Laboratory of Governance, Finance and Accounting at the Faculty of Economic Sciences and Management of Sfax, University of Sfax, Tunisia. Moreover, He has obtained his direction research diploma. His research activities deal with corporate finance, market finance, financial management, financial accounting, entrepreneurship, and Islamic finance.