Sensitivity Tests

In order to assess the accuracy of the achieved results, this study conducts two tests. Accordingly, in order to control for possible endogeneity problems, this research applies the 2SLS. Table 7.6 depicts the regression findings estimated through 2SLS test. The results

presented in Table 7.6 estimate the relationship between SSB and the content of the CSR disclosure index. An overall consistency was observed with the findings that were obtained by running model 1 presented in Table 7.4. The result of regression results using 2SLS show that the SSB is still found significant at 1 per cent (t=4.62 and p<0.01). With regard to the control variables, the results show that the relationship between the return on deposit and CSR disclosure is also significant at 10 per cent (t=1.62 and p<0.10). Meanwhile, the bank size and the bank’s Liquidity ratio was found to be positive, albeit insignificant. The Leverage ratio and GDP are negatively associated with the disclosure of CSR, however, do not indicate any significant relationship with the level of disclosure index. Notably, such findings are consistent with the results presented in Table 7.4 that deliver the outcomes of the Model 1.

In addition, this study applied the Durbin-Wu test to examine the issue of potential indigeneity between SSB and CSR disclosure. As mentioned earlier, due to omitted variable, the statistical assessment may be affected in the estimation process of the relationship between the SSB and CSR. Furthermore, as per a statistical model, it is possible for indigeneity to take place between the error term and explanatory variables (Greene, 2003). Accordingly, this study applies the Durbin-Wu test. The result present that coefficient of Durbin-Wu is not significant as presented in Table 7.6. This means that the null hypothesis is reject. Such results indicate that no threat of indigeneity is exists in the examined model (Gujarati, 2003) to this study.

Table 7.7. Panel Data using 2SLS Regression Analysis Measuring the Linkage between CSR disclosure and SSBSCORE:

Model 1 CSRD Coef. t-value SIZE 0.0078169 0.93 SSBS 0.1659013 4.62*** LIQ 0.0050612 0.93** LEV -0.0014955 -0.04 ROD 0.109195 1.62* GDP -0.890006 -0.05 CONSTANT 0.3432597 4.52***

R-Squared 0.1406 Prob>F 0.0000 Durbin-Wu 0.8998 Groups 11 Observations 208 Notes: *P < 0.1, **P < 0.05, ***P < 0.01. 7.6. Conclusion

The key objective of this Chapter is to evaluate the impact of SSB overall score in the form of a main governance traits on CSR disclosure through panel data regression using fixed effect. As mentioned earlier, the findings of regression analysis identified a significant positive relationship between CSR disclosure and overall SSB score which is consistent with existing literature (for example, Farook et al., 2011 and Rahman and Bukair, 2013). Based on such outcome, it can be stated that, Shari’ah Supervisory Board act as a key body within the Islamic banking in promoting the disclosure of CSR activities. The same outcome was also obtained statistically between the SSB and individual dimensions of CSR. Such outcome can be due to the positive impact of number/size of the SSB, their in-depth knowledge in Islamic banking and finance field. For instance, having a well-knowledgeable member in the SSB will increase the SSB capacity in understanding the moral and ethical values derived from the authentic Islamic law sources and apply them into the modern applications within the industry. This, of course, will increase the potential social wellbeing that Islamic banks may offer. As a result, an increase in the social activities by Islamic banks means an increase in their CSR disclosure. Therefore, it can be stated that this study demonstrates statistically the existence of a positive and significant correlation between SSB and overall CSR as well as individual CSR dimensions. It can be argued that the research outcome of this study are consistent with both agency and stakeholder theory as described in section 4.3 (literature) of the fourth chapter. Therefore, as regression analysis suggest, the SSB is extremely an important player in Islamic banking industry in promoting the social activities of the banks delivered through CSR activities. These outcomes highlight the importance of the SSB in guiding Islamic banks toward their core mission in promoting the social wellbeing of all stakeholders. Therefore, it is important to have SSB members with sufficient skills and knowledge about the Islamic banking sector. Most importantly, it is crucial maintaining the independency of SSB to enable them to take their role in a full capacity guiding towards and promoting the social wellbeing of the stakeholders.

CHAPTER EIGHT CONCLUSIONS

CHAPTER EIGHT CONCLUSIONS 8.1 Introduction

Despite that the interests in the Corporate Social Responsibility (CSR) disclosure have increased in recent year, the previous studies related to Islamic accounting and disclosure have been very limited. Such understanding has been the key motivation to undertake this study which has helped in addressing the five research questions and achieving the research objectives statistically. Therefore, this research concentrates on measuring the CSR practices as well as the influence of the Shari’ah supervisory board (SSB) on such practices. Accordingly, the current research aims to analytically explore and examined the practices of CSR disclosure and the extent to which the Islamic banks in GCC region disclose the information related to their CSR activities. Furthermore, this study also examines the impact of SSB related variables on CSR disclosure practices of the GCC Islamic banks aggregately and individually.

The concluding remarks of this thesis are provided in this chapter. Accordingly, this chapter is presented through the following sections: Section 8.2 includes a summary of findings of this research, Section 8.3 includes the contributions of research, and Section 8.4 provides the limitation and suggestions for future research. At the end, the research epilogue is covered in Section 8.5.

8.2 Summary of Research

This research primarily aims to evaluate the social practices of the GCC-based Islamic banks their disclosure of CSR practices. This research conducted this examination through content analysis of the annual reports of the examined banks. The content analysis is carried out by developing an index to represent the CSR dimensions based on Islamic moral values and accounting standards. Having constructed such index following the existing theories and literature in the field of CSR within Islamic finance, this study quantifies the qualitative information to present a quantitative measurement for CSR practices of Islamic banks in the GCC region. Furthermore, this research also aims to assess the effect of SSB variables on the CSR disclosure practices across these banks.

For the purpose of an empirical analysis this study has two empirical chapters. The first investigations entailed an analysis of the gap between realities and ideals of adhering to CSR

disclosure norms across the Islamic banking industry by studying the banks’ annual reports, leveraging content analysis and preparing the CSR disclosure index. Notably, the dimensions as well as sub-dimensions of CSR disclosure were selected on the basis of the Islamic finance principle that are delivered from the authentic sources of Islamic law. It included six content categories, which comprised ‘vision/mission statement’; ‘commitment toward the cause of employees’; ‘products and services’; ‘commitment to society’; ‘commitment to debtors’; and ‘Zakat, charity and benevolent fund.’ In order to display their sense of societal accountability as well as their adherence to religious principles, it is expected that Islamic banks will live up to their reputation of being responsible by adequately divulging CSR activities-related information. These banks are also expected to reveal in-depth information which is indicative of their commitment towards social responsibility activities as well as they are required to meet the expectations of Islamic ethical norms.

The empirical results of this research show that the overall score of CSR disclosure indices of Islamic banks continues to be relatively low for all the categories. Thus, the results of this research pertaining to the Islamic banks’ (within the GCC region) social activities outcomes revealed through CSR disclosure are not very promising. According to the study, such banks exhibit hesitance in revealing detailed CSR information. On countries level, Bahrain and Oman were found to report the highest score in CSR disclosure index (0.56) while Saudi Arabia stood at the bottom of this index of 0.45. As a best practice, full CSR disclosure compliance requires a score of at least 1.00. In light of this, a score of 0.56 as the best result is rather disappointing. Meanwhile, Kuwait claimed the third rank (0.53), while Qatar and the UAE occupied the subsequent two ranks with a score of 0.52 and 0.49, respectively.

In a similar manner, the overall ranking shows that these Islamic banks do not exhibit satisfactory commitments towards revealing information related to CSR disclosure. On dimensions level, their commitment toward debtors was found to be the topmost priority of all six countries in the GCC with a score of 0.68. Meanwhile the next two priorities were claimed by ‘vision/mission statement’ and ‘commitment to community ‘with scores of 0.61 and 0.55, respectively. The rest of dimensions were reported at the following levels: ‘employee’ with 0.44, ‘products and services’ with 0.43 and ‘Zakat, charity and benevolent loans’ with 0.35 scores. Considering that the three dimensions scoring higher assume significance in the context of Islamic banking, the minimum scores do indicate a cause of major concern. As an implication, the Islamic finance industry would do well to reconsider its seriousness about its ethical legitimacy concerning Islamic principles.

Based on the nature of Islamic financial products and system, it can be argued that the GCC Islamic banks are expected to demonstrate great accountability in sharing information on CSR. However, as per the findings, the extent of disclosure of most of these banks is considerably less than the expectations. Such underperformance is attributed to insufficient accountability and transparency practices within Islamic banking industry. Therefore, the Islamic banks are obliged to integrate the social dimensions within their system. Doing so will help them improve their contribution towards human empowerment across these societies. Importantly, Islamic economy is required to integrate moral and social dimensions in its financial practices.

Meanwhile, this research in the second empirical chapter aimed at evaluating the effect of SSB attributes on the Islamic banks’ CSR disclosure practices. This study included the CSR disclosure index and SSB in order to assess the influence of having a proper application of Islamic financial principles on the social activities practiced by Islamic banks and deliver through their CSR disclosure practices. This investigation is conducted using regression analysis applying fixed effect. Furthermore, in order to reach accurate outcome, this study applied related control variables, including: bank size, liquidity ratio, leverage ratio, return on deposit and gross domestic product.

From stakeholder, accountability and agency theories perspectives, it can be suggested that a positive correlation between CSR disclosure and variables related to SSB is expected. Based on these arguments, this study developed research hypotheses of this relationship. The empirical results of the first regression model suggest that SSB has positive and significant impact of the level of CSR disclosure of the GCC Islamic banks which is consistent with the second hypothesis. Therefore, it can be stated that Islamic banks that have a strong commitment toward their compliance with Shari’ah through their SSB attributes will have a high level of CSR disclosure.

Moreover, the results demonstrate a positive linkage between the CSR disclosure’s individual dimensions and SSB related variables. Therefore, the impact of SSB overall score on individual dimensions of CSR disclosure was examined in order to strengthen the understanding of such correlation. The result of the second regression model suggested a positive relationship between the SSB and the individual dimensions of CSR disclosure. Overall, the results of this study can be said to be consistent with stakeholder, accountability and agency theories.