Developing an islamic corporate social responsibility disclosure and sharia governance framework to examine financial performance in sharia banks

In Indonesia, a company's CSR activities must comply with ISO 26000 and realize one of the G20 goals; sustainability. Companies must have good governance to strengthen the company's competitive position, manage resources and risks more efficiently and effectively, and increase corporate value and investor confidence. Therefore, this study aimed to analyze and examine empirically the role of reputation in mediating the influence of Islamic CSR disclosure and sharia governance in improving the financial performance of sharia banks in Indonesia. This study used the latest GRI and CSR disclosure indicators, corporate governance, and financial performance from a religious perspective to establish a measurement framework. The purposive sampling method was used and the research sample consisted of 143 annual reports of sharia banks in Indonesia from 2009 to 2019 which were analyzed using panel data regression analysis. Results showed that the Islamic CSR disclosure and sharia governance, in terms of sharia supervisory board meeting frequency, had a significant positive effect on sharia banks’ reputation and financial performance in Indonesia. However, sharia governance, in terms of the sharia supervisory board members, had no significant effect on the reputation and financial performance of sharia banks in Indonesia. Reputation can mediate the effect of Islamic CSR disclosure and sharia governance on financial performance. This result implied that all sharia banks have to ensure the integration of a more comprehensive ethical system, such as Islamic ethical values, in every aspect of their business activities.