Abstract
The disclosure of risk by Islamic banks is very important, as this openness of information is emphasized in Islamic teachings. The purpose of this article is to provide empirical evidence regarding the influence of the number of members of the Sharia Supervisory Board (SSB) and their cross membership, the debt and the Syirkah fund ratio (investment accounts), the composition of the board of commissioners, the number of audit committee members, and the amount of assets on risk disclosure by Indonesian Islamic banks. The study uses content analysis techniques to measure risk disclosure by Islamic banks. The analysis uses panel data regression with observations for the period of 2010–2017. Based on the Fixed Effect Model, the study found out that the number of SSB members, the cross memberships of SSB, the ratio of independent commissioners to the number of audit committees do not influence risk disclosure. The leverage to investment account ratio does not influence risk disclosure. Also, the results of this study demonstrate that only the amount of assets influences risk disclosure.
Highlights
An Islamic bank is a bank that applies the principles of Islamic law in all its operations
The purpose of this article is to provide empirical evidence regarding the influence of the number of members of the Sharia Supervisory Board (SSB) and their cross membership, the debt and the Syirkah fund ratio, the composition of the board of commissioners, the number of audit committee members, and the amount of assets on risk disclosure by Indonesian Islamic banks
This study demonstrates that the number of SSB members, cross-membership of an SSB, the composition of the commissioners’ board, and the number of audit committee members do not have a positive impact on the risk disclosure by Islamic banks in Indonesia
Summary
An Islamic bank is a bank that applies the principles of Islamic law in all its operations. For Islamic banks to implement Sharia rules, disclosure of information is essential. This disclosure may enable consumers to make policy evaluations, and may be a way of obtaining information about the use of consumer funds by banks. According to Islam, disclosure of all information is needed to notify umma (the Islamic community) about the company’s operations, since umma has the right to know how the umma organizations influence their well-being (Maali et al, 2006). One type of disclosure that Islamic banks must make is risk disclosure (Dignah, Latiff, & Rahman, 2012; OJK, 2016). Among various studies describing information disclosure by Islamic banks, many have focused on disclosing information about banks’ social activities (see Aribi & Gao, 2010; El-halaby & Hussainey, 2015, 2016; Farook, Hassan, & Lanis, 2011; Hassan & Harahap, 2010; Nawaiseh, Boa, & ElShohnah, 2015; Rahman & Bukair, 2013), and about disclosure of SSB information and financial reporting (El-Halaby & Hussainey, 2016)
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