Academic journal article International Journal of Business

The Determinants of Social Accountability Disclosure: Evidence from Islamic Banks around the World

Academic journal article International Journal of Business

The Determinants of Social Accountability Disclosure: Evidence from Islamic Banks around the World

Article excerpt


We examine the determinants of Corporate Social Responsibility Disclosure (CSRD) in Islamic Banks (IBs). We content-analyse annual reports of 138 IBs across 25 countries to identify levels of CSRD. We use a regression analysis to identify the factors affecting CSRD in IBs. We find a very low disclosure level for CSRD (26%). We also find a positive association between CSRD levels and accounting standards; auditor type; bank size and the existence of a Sharia auditing department. We offer an original contribution to Islamic accounting literature by being the first to investigate CSRD in IBs around the world. We are the first to link CSRD based on AAOIF1 standards with bank -specific and country-specific characteristics.

JEL Classification: M4

Keywords: Islamic hanks; CSRD; social accountability; AAOIFI


Islamic Banks (IBs) are predicted in principle to embed ethics and social responsibility in their business model. From an Islamic business approach, everyone is accountable in front of Allah about his responsibility towards society (Haniffa and Cooke, 2002). CSR practices are mainly introduced to provide the social justices to the society (Gray et al., 1987). All Islamic values related to human life either individual or business are defined in Qur'an and Sunna (Rice, 1999). Therefore, IBs are anticipated to disclose more information to their customers about their activities and their compliance with Sharia (e.g., Baydoun and Willett, 2000; Lewis, 2001; Maali et al., 2006).

Farook (2008) argues that disclosure provides evidence about contribution in social activities through IBs. Consequently, to encourage IBs to disclose more information related to CSR activities, the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) issued Standard No.7 on Governance Standards in concerning with CSR disclosure in 2010. AAOIFI (2010) defines CSR as "all activities carried out by an IFI to fulfil its religious, economic, legal, ethical and discretionary accountabilities as financial intermediaries for individuals and institutions". Consequently, in complying with this standard, IBs can achieve their social accountability towards Allah then towards all stakeholders.

The existing body of CSR literature in IBs focuses on either the level of CSRD (e.g., Maali et al., 2006; Haniffa and Hudaib, 2007; Abdul Rahman et al., 2010; Hassan and Harahap, 2010; Aribi and Gao, 2012) or the determinants of CSRD (e.g., Farook et al., 2011). Most of the previous studies that explore CSRD conducted before the issuance of AAOIFI governance standard No.7 which represents a benchmark of CSRD in IBs. Thus, we are motivated to explore the compliance levels of this standard by IBs and their potential determinants.

Our paper offers several contributions. We are the first to study CSRD in IBs around the world for a large number of countries. We are also the first to consider a comprehensive number of bank-specific and country-specific characteristics in the analysis.

We found that bank size; accounting standards, the existence of Sharia auditing department and auditor type are positively associated with CSRD. We also find that GDP growth factor is positively associated with CSRD, while uncertainty avoidance and corruption are negatively associated.

The paper is structured as follows. Section II explores accountability and disclosure concepts from an Islamic approach. Section III presents theoretical framework of CSR from an Islamic approach. Section IV reviews the relevant literature for CSRD and develops the research hypotheses. Section V discusses the research design. Section VI reports the findings. Section VII concludes.


In an Islamic context, the key purpose of corporate reporting is to allow Islamic enterprises to show their compliance with Sharia as well as serving the society (Baydoun and Willett, 2000). …

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