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Corporate governance and financing risk in Islamic banks in Indonesia

Corporate governance and financing risk in Islamic banks in Indonesia This study aims to analyse the role of corporate governance in moderating the effects of murabahah, mudharabah and musyarakah financing on the financing risk and financial performance of Islamic banks.Design/methodology/approachThe population for this study covered Islamic banks in Indonesia. Purposive sampling was performed, and statistical analysis was conducted using moderating regression analysis by selecting among the common, fixed and random effects models.FindingsThe results showed that murabahah financing has a positive effect on financing risk; conversely, mudharabah financing has a negative effect on financing risk. By contrast, musyarakah financing has no effect on financing risk. However, corporate governance weakens the influence of murabahah financing on financing risk and increases that of mudharabah financing on financing risk. Further, corporate governance cannot weaken the effect of musyarakah financing on financing risk. Additionally, financing risk reduces financial performance.Research limitations/implicationsThis research focusses only on Indonesian Islamic banks; future research should be extended to Islamic insurance and Islamic micro finance.Practical implicationsThe results serve as input for government regulations on corporate governance in Islamic bank financing and encourage Islamic banks to diversify their financing proportionally.Social implicationsThis research can be used for optimising Islamic bank financing to empower the realty sector and reduce poverty.Originality/valueResearch on the role of corporate governance as a moderating variable in reducing financing risk in Islamic banks remains limited. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Islamic Accounting and Business Research Emerald Publishing

Corporate governance and financing risk in Islamic banks in Indonesia

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References (46)

Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1759-0817
eISSN
1759-0817
DOI
10.1108/jiabr-09-2021-0268
Publisher site
See Article on Publisher Site

Abstract

This study aims to analyse the role of corporate governance in moderating the effects of murabahah, mudharabah and musyarakah financing on the financing risk and financial performance of Islamic banks.Design/methodology/approachThe population for this study covered Islamic banks in Indonesia. Purposive sampling was performed, and statistical analysis was conducted using moderating regression analysis by selecting among the common, fixed and random effects models.FindingsThe results showed that murabahah financing has a positive effect on financing risk; conversely, mudharabah financing has a negative effect on financing risk. By contrast, musyarakah financing has no effect on financing risk. However, corporate governance weakens the influence of murabahah financing on financing risk and increases that of mudharabah financing on financing risk. Further, corporate governance cannot weaken the effect of musyarakah financing on financing risk. Additionally, financing risk reduces financial performance.Research limitations/implicationsThis research focusses only on Indonesian Islamic banks; future research should be extended to Islamic insurance and Islamic micro finance.Practical implicationsThe results serve as input for government regulations on corporate governance in Islamic bank financing and encourage Islamic banks to diversify their financing proportionally.Social implicationsThis research can be used for optimising Islamic bank financing to empower the realty sector and reduce poverty.Originality/valueResearch on the role of corporate governance as a moderating variable in reducing financing risk in Islamic banks remains limited.

Journal

Journal of Islamic Accounting and Business ResearchEmerald Publishing

Published: Mar 15, 2023

Keywords: Financing risk; Corporate governance; Murabahah; Mudharabah; Musyarakah

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