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Ethical disclosure in the Shari’ah annual reports of Islamic banks : discourse on Shari’ah governance, quantitative empirics and qualitative analysis

Sencal, Harun and Asutay, Mehmet (2021) 'Ethical disclosure in the Shari’ah annual reports of Islamic banks : discourse on Shari’ah governance, quantitative empirics and qualitative analysis.', Corporate governance : the international journal of business in society., 21 (1). pp. 175-211.


Purpose As an essential component of Islamic governance for ensuring religious compliance, Shari’ah annual reports (SARs) play an important role in providing communication between Shari’ah board (SB) members and stakeholders. This paper aims to determine the ethical disclosure in SARs to identify how close the Shari’ah disclosure to the standards set by AAOIFI and also substantive morality of Islam. The research also aims to examine the factors determining disclosure performance. Design/methodology/approach Two disclosure indices are developed to generate data from the SARs: the AAOIFI standards for Shari’ah governance index for form related approach, an Islamic ethicality augmented index reflecting on substantive morality approach. The sample consists of 41 Islamic banks from 15 different countries for the period of 2007–2014. Sampled 305 SARs were examined through disclosure analysis in line with the two indices developed for this study. The econometric analysis was run to identify the factors determining disclosure performance. Findings The findings suggest that AAOIFI guidelines have an influence on the level of disclosure, even if Islamic banks have not adopted them. However, the level of disclosure for the ethically augmented index is found to be very limited with reliance on general statements in most of the cases. As part of determining factors, the popularity of Shari’ah scholars is significant for both indices, while the existence of an internal Shari’ah auditing department holds some explanatory power. The adoption of AAOIFI standards at the country level, the regulatory quality and the duration of Sharīʿah-compliance are particularly deterministic factors in terms of complying with AAOIFI standards for SARs. Originality/value Although SB is the most crucial division of corporate governance in Islamic banks in terms of securing the “Islamic” identity of these institutions, their most important communication instrument, namely, SAR, has not been explored sufficiently, alongside an insufficient attempt to constitute Islamic corporate governance. Initially, this study attempted to constitute an Islamic corporate governance framework as a theoretical construct, which provides context for the empirical part of the research and this should be considered a novel approach. Second, the empirical part of the research aims to fill the gap observed in the literature such as small sample size and index construction-related matters. This research is conducted with a larger sample size as compared to the available studies in the literature and it has developed two indices for disclosure analysis along with developing an Islamic morality-based index beside an index based on AAOIFI standards.

Item Type:Article
Full text:(AM) Accepted Manuscript
Available under License - Creative Commons Attribution Non-commercial No Derivatives.
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Publisher statement:This article is made available under a Creative Commons Attribution Non-commercial International Licence 4.0 (CC BY-NC 4.0) and any reuse must be in accordance with the terms outlined by the licence.
Date accepted:29 October 2020
Date deposited:03 November 2020
Date of first online publication:15 December 2020
Date first made open access:08 April 2021

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