Defining Control Variables

flowing the literature, in order to examine the relationship CSR and SSB, this control for other variables that may have an impact, such as the bank size, industry specification and their extent of interaction (Farook et al., 2011; Platonova et al., 2016; Rahman and Bukair, 2013; Rahman and Bukair, 2015). This is premised on empirical and theoretical research that have been

Abbreviations Independent

Variables

Description Source of information

SSBSCORE SSB overall

Score

The summation of: SSBEX + NSSB +

CRSSB + PHDSSB + REPSSB + EXPSSB.

Derived from sub- variables below

SSBEX SSB Existence Dichotomous; yes/no Bank annual report

NSSB Number of

SSB

Dichotomous; 1 for banks with 7 or more members and 0 otherwise

Bank annual report

CRSSB Cross-

membership

Dichotomous; if any SSB member with cross directorship: 1, otherwise: 0

Bank annual report

PHDSSB Doctoral

qualification of SSB member

Dichotomous: if any SSB member with doctorate qualification: 1, otherwise: 0

Bank annual report and web site

REPSSB Reputable

scholars on SSB

Dichotomous: if any reputable SSB member: 1; otherwise: 0. Reputable scholar is one that has a position in the SSB of the AAOIFI and at least two Shari’ah board memberships

AAOIFI standards and bank annual report

EXPSSB Experience of

SSB

Dichotomous: if any of SSB member have an economic or accounting knowledge : 1; otherwise: 0.

Bank annual report and web site

conducted previously and stressed on the significance of mediators between Islamic banks’ corporate governance and social performance. Accordingly, this study adopted a model that taken into consideration the size of the bank, Leverage, Liquidity ratios, return on deposits and GDP (gross domestic product) as the key control variables. This is because, as suggested by the existing literature, they are deemed to be the most significant elements that need to be controlled for when measuring the relationship between CSR disclosure and SSB attributes.

7.4.4.1. Bank Size (BSIZE)

With regards to the control variable, the existing literature has consistently emphasised on the important role that bank size may play in promoting the CSR disclosure (for example, Al- Brammer et al., 2006; Mallin and Michelon, 2011). According to Roberts (1992), a positive relationship exists between the size of bank and CSR, pointing out that the older and bigger a company is, the greater the extent of its involvement in CSR activities, thereby positively influencing its reputation. Agency theory posits that bigger companies need to disclose additional information to several user groups; this, in turn, is likely to result in reduced agency costs and information asymmetry (Inchausti, 1997). However, in prior studies on disclosure, the linkage of a firm’s size and reporting of disclosure reporting has been rather mixed. Whilst a few have studies established a positive linkage (Alsaeed, 2006; Chavent et al., 2006; Kamal Hassan, 2009), other researchers (Rajab and Schachler, 2009) have opined that the relationship is insignificant. Therefore, it can be inferred that the bank size remains one of the most vital characteristics of disclosure, preferred accounting policy, as well as the quality of accounting (Rahman et al., 2002; Goodwin et al., 2009). Especially, this position could be solidified by arguing that the larger banks are witnessing a stronger demand to showcase information for analysts, customers as well as the public at large (Cooke, 1989; Hossain and Reaz, 2007). Hence, the bank's size is expected to positively affect the level of CSR disclosure.

7.4.4.2 Liquidity Ratio (LIQ)

In addition, a number of studies by referring to the signalling theory have made an investigation into the linkage between companies’ liquidity and their disclosure levels. In this regard, Abdelsalam and Weetman, (2007) observed that ratios of high liquidity can pave the way for additional information disclosure. In a study that concentrated on Egyptian companies, the

conclusion was that firms with higher amounts of liquidity displayed greater voluntary information than with the ones who had lower ratios of liquidity (Abd-Elsalam and Weetman, 2003). With that being said, it has been observed that such firms’ (with lower liquidity) corporate managers could choose to disclose additional information voluntarily in order to comply with their stakeholders’ requirements. Unlike Ezat and El-Masry (2008), who identified a positive correlation between liquidity and the extent of web-based reporting, Aly et al., (2010) actually found a negative linkage between the two. As cited in Hussainy et al., (2011), Samaha and Dahawa (2010) observed that the overall levels of voluntary disclosure and liquidity did share a positive relationship.

7.4.4.3 Leverage Ratio: (LEV)

Based on the literature, it can be argued that the bank leverage may have a critical impact on the level of CSRD. To that end, Elzahar and Hussainey (2012) posit that in accordance with the agency theory, the cost of agency goes up when the leverage ratio is high. Costs associated with monitoring and agency is bound to increase when debt holders decide to turn a covenant that is of preventive nature into debt contracts. In their research, Wallace et al. (1994), found a positive relationship between corporate disclosure and leverage. Correspondingly, Rajab and Handley- Schachler (2009) discussed the potential role of management on voluntary disclosures. Premised on the signalling theory, ninety-seven managers voluntarily divulged the information when it was found that the ratio of leverage is high enough for attracting investors. They also provide a hint to creditors about their firm’s ability to meet short-term and long term needs (Elzahar and Hussainey, 2012). To that end, several studies have found a positive association between voluntary disclosure and leverage (Deumes and Knechel, 2008; Elshandidy et al., 2013). Hence, based on such substantial literature, the bank leverage is expected to yield a positive effect on CSR disclosure levels.

7.4.4.4. Bank Performance: Return on Deposit (ROD)

Many studies in the past have indicated a significantly positive linkage between a firm’s social disclosure and its performance (Roberts, 1992; Hackston and Milne, 1996; Smith, et al., 2007). However, other research studies have failed to find any relationship between the company’s performance and social disclosure (Cowen et al., 1987; Hackston and Milne, 1996; Hamid, 2004;

Branco and Rodrigues, 2008). From an Islamic standpoint, a firm would do well to provide complete disclosure in all possible cases, regardless of whether it is making a profit (Haniffa,

2002). Since Shari’ah’s teachings strongly focus on societal wellbeing and social

responsibilities, in particular, a bank’s profitability is likely to have a major effect on CSR disclosure levels, which may result in additional contributions (financial and otherwise) towards social activities and bringing about improvement in the lives of people. Therefore, a positive linkage between CSR disclosure and financial performance has been observed in previous studies.

7.4.4.5. Economic Performance: Gross Domestic Product (GDP)

A country’s economic development is generally measured by considering its GDP (Samuelson and Nordhaus, 1989), which is broadly used to gauge the quality of institutional environment at large. Additionally, GDP is a primary determinant in terms of any nation’s economic performance. In an empirical study conducted among Asian companies from seven countries, no linkage was found between measured a nation’s economic prowess assessed by CSR disclosure and economic performance (Chambers et al, 2003). Hence, a conclusion can be reached that no linkage exists between countries’ GDP CSR disclosure levels of Islamic banks within the GCC region.