Shariah Supervisory Board and Shariah Compliance Risk: Empirical Evidence from Indonesia

Document Type : Research Paper

Authors

1 Faculty of Economics and Business, Universitas Negeri Semarang, Indonesia

2 Faculty of Economics and Business, Universitas Diponegoro, Indonesia

10.22059/ier.2024.368239.1007851

Abstract

This study examines the effect of educational level, educational background shariah/Islamic law/Islamic law jurisprudence, cross-membership, and tenure of shariah supervisory board (SSB) members, as well as market competition on shariah compliance risk. The research sample is 14 full-fledged Islamic banks (IB) from Indonesia during the 2009-2020 observation year. The data analysis method uses panel data analysis with a fixed effect model or random effect model with a robust standard error approach. We found that cross-membership, educational background, and tenure of SSB have a positive effect on shariah compliance risk. In addition, we show that banks that have high market power take high shariah compliance risks. This study supports the upper echelons theory, over-boarding hypothesis, human capital resource theory, and competition-fragility hypothesis in explaining the role of SSB on shariah compliance risk. This study is helpful for regulators and IB owners in determining the qualifications of SSB members, including education level, educational background, cross-membership, and tenure, because these SSB attributes affect the effectiveness of SSB in controlling shariah compliance risk.

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Iranian Economic Review

Articles in Press, Accepted Manuscript
Available Online from 12 February 2024

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