Does Islamic Corporate Governance Contribute to the Performance of Islamic Banks? Evidence from Indonesia and Malaysia

Intan Destia Helmi, Ratna Mulyany

Abstract


The issue of corporate governance (CG) is pertinent and distinct within Islamic banking institutions with the presence of additional element of Islamic supervisory board which is not available in the conventional banks. In relation to this notion, this study investigates the influence of Islamic Corporate Governance (ICG) on the performance of Islamic Banks (IBs) in two major Islamic financial hubs in Southeast Asia, i.e. Indonesia and Malaysia during the period of 2015-2017. Islamicity Performance Index (IPI) particularly Zakat performance ratio and equitable distribution ratio were selected to measure the performance of Islamic Banks for the samples of 10 IBs in Indonesia and 12 IBs in Malaysia resulting in a total 66 observations. Meanwhile Islamic Supervisory Board and Board of Director represent the ICG variable. This study revealed that the performance of IBs is indeed influenced by ICG indicators. Furthemore, the results indicate that the influence of Islamic Supervisory board on the performance of IBs in Malaysia is higher than Indonesia, yet the influence of Board of Director in Indonesia is higher than Malaysia. This study implies that there is an urgent need to strengthen the ICG mechanism in the Islamic banking industry.


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References


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