Hamdard Islamicus Vol. XLVI, No. 2 65 SHARÔ‘AH DISCLOSURE AND READABILITY OF ISLAMIC BANKS IN PAKISTAN NAILA BIBI Department of Business Administration Sukkur IBA University, Sukkur, Sindh suk.edu.pk-nailabibi.phdmgts22@ibaEmail: ABIDULLAH KHAN Department of Business Administration Sukkur IBA University, Sukkur, Sindh edu.pksuk.-abidullah@ibaEmail: MUHAMMAD SHAIQUE Department of Business Administration Sukkur IBA University, Sukkur, Sindh suk.edu.pk-shaiq@ibaEmail: WASIM JAN Department of Business Administration Sukkur IBA University, Sukkur, Sindh suk.edu.pk-wasimjan@ibaEmail: Received on: 08-12-22 Accepted on: 13-05-23 https://doi.org/10.57144/hi.v46i2.669 Abstract Islamic banks are required to ensure SharÊ‘ah compliance as established by regulatory authorities, i.e., the State Bank of Pakistan. Stakeholders consider SharÊ‘ah compliance as a crucial factor when investing in these banks, which is why annual reports are produced to communicate the level of compliance. However, these reports often lack complete and readable information about the banks’ level of SharÊ‘ah compliance. This study analysed the extent of SharÊ‘ah governance disclosure and readability in annual reports of 19 Pakistani banks, including full-fledged and window Islamic banks. Using the SharÊ‘ah disclosure index and content analysis, the study identified the disclosure level and explored the disclosures’ readability using Bog Index in the SharÊ‘ah reports. Results showed that full-fledged banks had a higher mailto:nailabibi.phdmgts22@iba-suk.edu.pk mailto:abidullah@iba-suk.edu.pk mailto:shaiq@iba-suk.edu.pk mailto:wasimjan@iba-suk.edu.pk https://doi.org/10.57144/hi.v46i2.669 66 Shari’ah Disclosure and… level of disclosure than window banks. Meanwhile, SharÊ‘ah reports were generally difficult to read. Improving the level of disclosure and readability in SharÊ‘ah reports can have a positive impact on all stakeholders. The study provides implications for management to enhance the level of SharÊ‘ah compliance and readability, which will lead to a better understanding of the banks’ operations, increased trust in these institutions, and ultimately, contribute to the growth and development of Islamic finance in Pakistan. Stakeholders such as investors, customers, and policymakers will be able to make more informed decisions with a clearer understanding of the banks’ operations. A better reputation for Islamic banking will help attract more customers and investors, further boosting the country’s growth and development of Islamic finance. Keywords: Islamic Banks; Readability; SharÊ‘ah Governance; SharÊ‘ah Disclosure Index. 1. Introduction The growth of Islamic finance is due to the distinctive characteristics of Islamic Financial Institutions (IFIs), which strongly emphasize fairness and justice in their operations based on the two primary moral guidelines found in the Holy Qur’Én and Sunnah. Islamic banks (IBs) are responsible for ensuring their products, operations, and instruments comply with SharÊ‘ah rules. Compliance can only be observed if IBs are monitored under a strong SharÊ‘ah governance framework. In this regard, the regulatory bodies of the country provide a proper framework for Islamic banks; e.g., Malaysia is following the SharÊ‘ah Governance Framework issued by Bank Negara Malaysia, and similar to it, the State Bank of Pakistan (SBP) has issued the SharÊ‘ah Governance Framework (SGF) for Islamic banks in 2018. Compliance with SharÊ‘ah and implementation of the SharÊ‘ah framework are also encouraged by international institutions like the Accounting and Auditing Organization for Islamic Financial Institutions (AAOFI). In a similar vein, AAOIFI has issued governance standards as well. Since the core foundation of Islamic banks lies in SharÊ‘ah principles, the public expects that these banks will provide more transparency and fairness in their operations and reporting. Resultantly, the presence of effective SharÊ‘ah governance increases stakeholders’ trust in the IB’s products and operations. The stakeholder theory suggests that managers serve and promote all stakeholders’ interests, including customers, suppliers, employees, and stockholders1. Thus, Islamic banks need to communicate essential information to their stakeholders. Annual reports serve as a communication channel between stakeholders and businesses; thus, information disclosure is communicated this way2. According to the SharÊ‘ah perspective, social responsibility gave rise Hamdard Islamicus Vol. XLVI, No. 2 67 to the principle of full disclosure, in which the public has a right to know how a company’s operations will affect its decisions. Similarly, SharÊ‘ah disclosure gives customers high confidence by providing adequate and relevant information3. Khomsatun4 demonstrates how SharÊ‘ah disclosure affects the soundness of IBs in terms of management effectiveness, capital adequacy ratio, asset quality, and liquidity. The findings suggest that SharÊ‘ah disclosure mediates the indirect impact of SSB on the soundness of Islamic banks. Hence, IBs need to provide a clear information disclosure system as compared to their conventional counterparts5. Information regarding SharÊ‘ah governance disclosure in corporate annual reports is important, as it assists users in decision-making6. Recently, research on disclosure has received much consideration from academicians, and numerous studies have been conducted7. Moreover, it is observed that insufficient disclosure leads to fraudulent financial reporting and corporate failure, as managers could easily misrepresent information8. Therefore, disclosure helps decrease the information gap between external stakeholders and managers9. There is a split in the literature about to what extent IBs disclose information in their annual report. For instance, corporations must disclose information that is necessary for decision-making. In this regard, Hanifa and Hudaib10 argued that complete disclosure of relevant information should assist external users in making both financial and religious decisions, as well as assisting the management in fulfilling their duty to God and society. Khan et al.11 revealed that IBs still lack information in their corporate governance disclosures. Khanifah et al.12 conducted a similar analysis and concluded that Islamic banks have 72 percent SharÊ‘ah disclosure on average. Further investigation shows that full-fledged Islamic banks have a higher level of disclosure than window banking12. Similarly, Ismail et al.13 investigated full-fledged Islamic banks in Pakistan. However, their study is limited to only full-fledged Islamic banks. Current research has considered both window and full-fledged Islamic banks and compared the level of disclosure. On the other hand, information disclosure is insufficient until it is readable so that the readers can understand. Specifically when prospective users are unable to comprehend the content of the disclosure provided in the reports. However, the importance of annual report disclosure comes with its capacity to convey meaning to various stakeholders. Therefore, good components alone do not guarantee the quality of well-written communication. Annual report readability is an important element of disclosure. Lehavy et al.14 demonstrate how the volume and complexity of disclosures have 68 Shari’ah Disclosure and… grown significantly over time. However, it is the firm’s responsibility to present disclosures in a language that investors can understand15, depicting the importance and significance of readability16. Despite the growing considerations on an annual report’s readability from the aforementioned studies, it has been observed that no such study on SharÊ‘ah reports has been conducted to the best of our knowledge. Therefore, this study examines the extent of SharÊ‘ah governance disclosure in the annual reports of Pakistani banks, including full-fledged and window Islamic banks. This objective was achieved by constructing the SharÊ‘ah disclosure index and then deriving the information related to each index item from the annual reports of Islamic Banks. Meanwhile, another objective is to examine the readability of SharÊ‘ah governance disclosure by comparing full-fledged and window Islamic banks using the Bog index on the text related to SharÊ‘ah disclosure in the annual reports of Islamic banks. 2. Literature Review 2.1. SharÊ‘ah Governance Corporate governance (CG) is how companies are controlled and directed17. It is the way organizations are governed and operated.18 19, describes corporate governance as the framework for the direction and control of business operations. It is a “collection of mechanisms designed to safeguard shareholders’ interests.” The growing importance of CG is the result of the Lehman brothers, Enron scandals, and Asian financial crises20. Considering these corporate problems, the corporate control and governance mechanism plays a major role in regulating corporations’ financial systems21 by establishing the framework for the relationship between directors, the board of directors, and shareholders. It also clarifies each party’s rights and obligations to effectively utilize the opportunities and resources22. In addition, effective governance mechanisms can improve transparency, corporate performance, and shareholder value23. It has been observed from Chinese Listed companies that the supervisory board has played an active role when Chinese firms are sentenced to some irregularities24. On the other hand, SharÊ‘ah is concerned with both the substance and the form of business; CG of a SharÊ‘ah-compliant business would first examine the transactional structure to determine whether the transaction involves elements that invalidate gains or profits25. The philosophy on which Islamic banks operate is based on a profit and loss and risk-sharing model and, thus, are not permitted to engage in speculation and interest-based activities26. Hamdard Islamicus Vol. XLVI, No. 2 69 The contradicting philosophy of IBs with conventional business operations may misrepresent information regarding the SharÊ‘ah compliance of the operations and products. This is because the BODs always think about profit maximization and may be involved in SharÊ‘ah non-compliant activities without disclosing it to the stakeholders. Therefore, the stakeholders of Islamic banks are more interested in knowing how the profits are derived. In this regard, the established rules of SharÊ‘ah governance hinder BODs from indulging in any SharÊ‘ah non-compliant activity. The supervisory board is the main layer differentiating conventional corporate governance from Islamic governance. In addition, the concept of CG from an Islamic perspective does not differ much from the conventional definition as it refers to a system by which companies are directed and controlled to meet the company’s objective and the interest of all stakeholders. Regarding standardization of rules, Islamic corporate governance differs from conventional corporate governance practices because Islamic corporate governance must be based on Islamic SharÊ‘ah principles inspired by Holy Qur’Én and HadÊth27. To sum up, the context of corporate governance with an Islamic perspective is more focused on the socio-scientific concept in major decision- making and considering the teaching of Islam28. Every country has its own rules and regulations regarding banking and is therefore governed by the Central Bank. In the case of IBs, the situation is not much different. For instance, the Bank of Negara Malaysia issued SharÊ‘ah governance standards for Islamic Banks in Malaysia. Similarly, the State Bank of Pakistan has issued and implemented a comprehensive SharÊ‘ah governance framework. The emphasis on SharÊ‘ah corporate governance emerged in the twenty-first century after the birth of Islamic finance and banking. The increase in the number of SharÊ‘ah firms has led to the formulation of SharÊ‘ah rules and regulations following Shari’ah jurisdiction. These rules are derived from Shari’ah law. To understand SharÊ‘ah governance, it is necessary to comprehend how SharÊ‘ah governance organs work. The main distinguished element that differentiates it from its conventional counterpart is the SharÊ‘ah supervisory board. The SSB is a crucial component of the Islamic governance body that monitors and certifies an Islamic bank’s compliance with SharÊ‘ah29. SSB is required to ensure product implementation and any other activity connected to Islamic financial institutions (i.e., Islamic banks comply with SharÊ‘ah). In this regard, IBs should have the SSB, whose responsibility is to make sure that the products and services given to 70 Shari’ah Disclosure and… investors and consumers comply with the laws and values of SharÊ‘ah30. Therefore, the disclosure of these activities in the financial reports must be provided by Islamic Banks. It is important to note that since the core of IBs is based on SharÊ‘ah principles, it is held accountable to Allah Almighty first and society second, where accountability and responsibility are presumed to be mandatory. Thus, the disclosure is owed fundamentally to Allah Almighty and the community31. Therefore, to examine the SharÊ‘ah disclosure in the financial report. Al-Shiabah et al.32 have explored the extent of disclosure of SGF in full-fledged and window Islamic banks of Oman. Moreover, Zulfikar et al.33 have found that Indonesian SharÊ‘ah banks have improved their level of disclosure, which was 60 percent34 to 89 percent. Therefore, we propose that: H1: There is a significant difference between the disclosure of full-fledged Islamic and window banks. 2.2. Readability of Islamic Banks’ SharÊ‘ah Reports As discussed, much of the literature is focused on the SharÊ‘ah disclosure provided by Islamic banks. However, as per our knowledge, none of the studies has focused on how readable the provided disclosure is for a common reader. Thus understanding art is of equal importance to understanding science35. How the concept is defined is mainly considered to the readability of the text36. Readability is “the understandability or comprehension of the writing due to its style”37. Multiple definitions are provided by authors, such as DuBay,38 who defined it as “the degree to which particular class of people find certain reading comprehensible and compelling”. Annual reports are the source of information corporations provide to their investors, which enables them to supervise the management. Difficulty with the readability of these disclosures has serious consequences39. Shareholders of firms with less clear and ambiguous annual reports also suffer from less transparent information disclosure40. It also undermines investors’ ability to process information41. Moreover, the extent of readability of the disclosures that provide these documents credibility and importance for conveying important information to stakeholders in an effective way42. Li43 has used the Fog index to measure readability by calculating the document’s number of words and length using a sample of 10-k files. Boubaker et al.44 have also used the same Hamdard Islamicus Vol. XLVI, No. 2 71 technique. However, there are some shortcomings in the fog index, as it measures the multisyllabic words as complex, i.e., the company has three syllables, but the index will consider it a complex word, but everyone commonly understands it45. Another frequently used method is the Flesch score, which is used as a measure of readability. However, Flesch and the fog index faced some critics from practitioners, such as not capturing the complexity of sentence structure46. Although the fog index is used by many authors in measuring readability, this study uses the Bog index. The main reason to use the Bog index measure as readability is that it can potentially measure non-financial information. The above-mentioned studies provide the significance of readability. The main channel for conveying corporate information is annual reports. However, understanding available information is equally important. The annual report of SharÊ‘ah banks provides details about their operations and products. These reports also contain some specific SharÊ‘ah-related information. Using complex words and terms may make it difficult for stakeholders to understand that information. Thus, information disclosed in the SharÊ‘ah report must be readable. Therefore, it is important to consider the readability of full-fledged and window banking. Ahmed et al.47 have conducted readability of the mission and vision statement of Pakistani Islamic full-fledged and window banking. Findings suggest the window banking mission statement is more readable than full-fledged banks. However, when one is concerned about the readability of SharÊ‘ah disclosure of full fledge and window Islamic banks, it can be deduced that since the former has more expertise than the latter, their reports are more readable. Therefore, it is hypothesized that: H2: The SharÊ‘ah disclosure in the reports of full-fledged Islamic banks is more readable than window Islamic banks. 3. Research Methodology 3.1. SharÊ‘ah Disclosure Index To test H1, the SharÊ‘ah disclosure index is adapted from the study of Ismail et al48. A thorough review of the SBP SharÊ‘ah governance framework constructs it. It includes all organs of SGF- 2018. Every bank has been given a score based on the whole SGF- 2018 disclosure items in the annual report. The items are selected on a quantifiable basis. Previous studies 49 49 50 employ several stages to develop a disclosure index. Therefore, developing an index requires three steps. First, to measure disclosure, the items in the index are developed based on the SharÊ‘ah governance framework 2018 issued by SBP. Second, items included in the index are selected carefully by reading SGF-2018, and third, selecting main dimensions based on 72 Shari’ah Disclosure and… governance organs. There are eight organs, BODs, Executive Management, SharÊ‘ah Board, Resident SharÊ‘ah Board Member, SharÊ‘ah Compliance Department, Product Development, Internal Shari’ah Audit, and External SharÊ‘ah audit. The index consists of 31 items; the dimensions show to determine the level of governance disclosure using the index in each governance section of an annual report. After the development of the index, the formula for calculating the mean is as follows: SGDI= ∑ 𝑿𝒊𝒋 𝒏𝒋 𝒕=𝟏 𝒏𝒋 Where n is the estimated number of items disclosed by the jth bank, multiplication term 𝑋𝑖𝑗 is 1 if an item is disclosed fully, 0.5 if partial disclosure is provided, and otherwise 0. To compare the means of each group, the paired-sample t- test is applied to examine the difference between means of full- fledged and window Islamic banks for five years sample and compare the level of disclosure of other countries and Pakistan. Lone et al.,51 used a t-test to compare the CSR disclosure of each sector. 3.2. The Readability Measures: We first converted SharÊ‘ah disclosure pdf files into HTML text files to compute readability. Tables and figures, and numbers were deleted from the text. The calculation of the SharÊ‘ah report is based on the remaining text. We used the bog index52 to capture a broader set of plain English attributes. It captures the plain English writing attributes. The bog index summarizes those writings that make readers bog down. It is calculated as: Bog Index = Sentence Bog + Word Bog – Pep, Where, the higher the bog index lower the readability. The first component, sentence Bog, identifies problems with readability caused by sentence length and with longer sentences having a higher Bog Index. The program determines the typical sentence length for the entire document. The typical long sentence limit of 35 words per sentence is then squared to determine the average length. The second component, based on the word bog contains two parts. To be more precise, Word Bog is computed as the total problems in plain English and word difficulty multiplied by 250 Hamdard Islamicus Vol. XLVI, No. 2 73 and divided by the total number of words. The second subcomponent is based on the word difficulty of general vocabulary. The bog index measures the difficulty using predetermined 200,000 words based on familiarity and precision. The final component, i.e., Pep, highlights writing characteristics that make it easier for readers to understand texts. This part of the Bog Index considers good writing by adding elements like names and fascinating words, which tend to make writing more interesting. 4. Findings 4.1. SharÊ‘ah Disclosure The disclosure level of Islamic window and full-fledged banks through the years (2017-2021) is presented in Tables 4.1 and 4.2. Table 4.1 shows that Summit Bank has the highest disclosure at 70%, while Allied Bank and Habib Metropolitan Bank have the lowest at 41%. Disclosure Level of Window Islamic Banks Banks 2017 2018 2019 2020 2021 Average Summit 66% 66% 66% 66% 60% 65% UBL 65% 65% 65% 65% 65% 65% Faysal Bank 65% 65% 65% 65% 58% 63% NBP 61% 61% 60% 60% 63% 61% Soneri5 Bank 60% 58% 58% 58% 53% 57% Bank of Khyber 58% 58% 55% 58% 56% 57% HBL 65% 55% 55% 55% 52% 56% Bank of Punjab 55% 55% 55% 55% 53% 55% Standard Chartered 52% 52% 52% 52% 52% 52% Bank Alfalah 44% 44% 44% 58% 44% 46% Askary 44% 44% 40% 34% 50% 42% Bank Alhabib 42% 40% 53% 37% 37% 42% HMP 40% 48% 56% 40% 19% 41% ABL 27% 47% 42% 45% 44% 41% Table 4.1. Level of Disclosure of Islamic Window Banks 74 Shari’ah Disclosure and… Looking at the full-fledged Islamic banks in Table 4.2, again, Meezan has the highest score, followed by Dubai Bank, which has 55% disclosure. Al-Baraka has the lowest level of disclosure. Interestingly, it can be observed that the overall SharÊ‘ah disclosure of Islamic window banks is higher than full-fledged banks. Disclosure Level of Full-fledged Islamic Banks Banks 2017 2018 2019 2020 2021 Average Meezan Bank 61% 68% 60% 82% 79% 70% Dubai Bank 53% 53% 65% 52% 52% 55% Bank Islami 45% 65% 47% 61% 50% 54% Al-Baraka 35% 37% 32% 32% 35% 35% MIB 26% 45% 35% 42% 52% 40% Table 4.2. Level of Disclosure of Full-fledged Islamic Banks Table 4.3 reports the descriptive statistics. The sample consists of 5 full-fledged and 14 window banks. The mean disclosure value of full fledge Islamic banks is 50.8%. Similarly, window banking has a mean value of 53.07%, slightly higher than full-fledged banks. Moreover, data is normally distributed under the kurtosis range. It is important to notice that the sample variance of window banking is higher than full-fledged. The maximum disclosure level of full-fledged banks is 70%, and the minimum level is 36%; compared to window banking maximum range is 65% which is lower than full-fledged, and the minimum level is 41%. Descriptive Statistics Full-Fledged Window Banks Mean 50.58064516 53.0645161 Standard Error 6.221208397 2.41486053 Median 53.5483871 55.3225806 Standard Deviation 13.91104488 9.03558074 Sample Variance 193.5171696 81.6417194 Kurtosis -0.598195118 -1.53825014 Skewness 0.324468841 -0.19660398 Range 35.48387097 23.8709677 Minimum 34.51612903 40.9677419 Hamdard Islamicus Vol. XLVI, No. 2 75 Maximum 70 64.8387097 Sum 252.9032258 742.903226 Count 5 14 Table 4.3. Descriptive Statistics The results of Hypothesis 1 are shown in Table 4.4. The result shows no significant mean difference between full-fledged and window banking. It can be deduced that the average disclosure of both samples is not significantly different. Hence, we cannot reject the null hypothesis stating that there are no significant mean differences in the disclosure level of the window and full-fledged Islamic banks. t-Test: Two-Sample Assuming Equal Variances Full- Fledge Window Banks Mean 50.58065 53.06452 Variance 193.5172 81.64172 Observations 5 14 Pooled Variance 107.9654 Hypothesized Mean Difference 0 df 17 t Stat -0.45884 P(T<=t) one-tail 0.326081 t Critical one-tail 1.739607 P(T<=t) two-tail 0.652163 Table 4.4. Results of T-Test In Table 4.5, we have compared the mean differences between full-fledged Islamic banks and Islamic windows with the average disclosure mentioned in the literature. Results show a significant negative relationship between the means and suggest that at a 5% significance level window bank’s mean is 26% lower than average, and the full-fledged bank’s mean difference is 28.7% lower than the overall average disclosure level in the literature. 76 Shari’ah Disclosure and… Test Value = 79.5% t df Sig. (2- tailed) Mean Difference Full Fledged -4.647 4 .010 -28.700 Windows -0.865 13 .000 -26.429 Table 1.5 Results of One-Sample t-Test 4.2. Readability Analysis: The results of the readability of the SharÊ‘ah board report of 19 banks lack readability. Table 4.6 and 4.7 presents the readability score throughout 2017-2021 of 19 banks. The results are presented based on each bank. We have used Bog Index as a measure of readability. A higher level of bog index score reflects the lowest document readability. Bog Index Score of Window Banks 201 7 201 8 201 9 202 0 202 1 Averag e ABL 83 83 80 80 75 80 Bank Alfalah 76 86 86 93 85 85 Al-Habib 94 98 98 87 84 92 Askari 93 80 104 114 87 96 BOK 93 91 89 108 114 99 BOP 83 101 113 98 104 100 Faysal Bank 99 105 96 106 108 103 HBL 109 104 97 97 97 101 HMP 84 84 83 91 60 80 NBP 92 95 89 79 75 86 SC 71 74 81 90 86 80 Soneri Bank 81 86 78 76 83 81 Summit Bank 95 85 96 90 93 92 UBL 94 95 99 92 92 94 Table 4.6. Readability Score of each Islamic Window Bank Hamdard Islamicus Vol. XLVI, No. 2 77 Bog Index Score Full-fledged Banks 2017 2018 2019 2020 2021 Average Meezan 84 79 81 84 88 83 MIB 128 130 81 99 102 108 B.Islami 67 84 82 83 86 80 AlBaraka 73 78 77 76 91 79 DIB 91 88 94 101 95 94 Table 4.7. Readability Score of each Full-Fledged Islamic Bank Accordingly, the bog index of banks reflects poor readability of narrative disclosure. However, comparing the readability score of each bank every year, most of the banks have improved from 2018 to 2020, whereas, in 2021, banks failed to maintain readability. Moreover, from the perspective of each bank, Faysal Bank, HBL, and MIB are reported at a Bad level with the highest bog score. However, Al-Baraka, ABL, and Bank Islami have scored low in the bog index, which inculcates that they are considered poor but comparatively better than the aforementioned banks. 5. Discussion The above analysis indicates that full-fledged Islamic banks have comparatively lower disclosure than Islamic window banks. Moreover, the average overall disclosure of Islamic banks is 52% lower than other countries’ reports. A similar phenomenon is found by Al-Shaibah32 where many Islamic bank reports highlight very little Shari’ah disclosure information, affecting the overall Islamic Banks' Shari’ah disclosure. However, the overall SharÊ‘ah disclosure reported by the study is still above 70%. On the contrary, the study of Zulfikar and Puspawati 33 reports 89% SharÊ‘ah disclosure of Indonesian Islamic banks, where most banks disclose above 90% of Shari’ah governance-related information. Unfortunately, comparing the average SharÊ‘ah disclosure of Islamic Banks with Pakistani Islamic Banks, it is found that these Banks are still far behind the international average of 79.5%, which we calculated from the previous literature. More specifically, it is observed that Meezan Bank has the highest disclosure level. This suggests that Meezan Bank is more compliant with SharÊ‘ah governance framework guidelines, whereas Al-Baraka lacks in disclosing information required by the SBP governance framework. The overall average score for SharÊ‘ah disclosure (including full-fledged and windows) is 52% confirming 78 Shari’ah Disclosure and… the findings of an earlier study by Ismail et al.53 in the Pakistan context. Still, their sample consists of only full-fledged Islamic banks. The most significant part of SharÊ‘ah governance is the Shari’ah board, the main ruling department of Islamic banks and has comparatively the lowest score. However, this dimension has the highest number of items. The dimension consists of SharÊ‘ah board members as authority to oversee the operations and implementation of overall SharÊ‘ah compliance. From a theoretical perspective, the results do not support the argument of stakeholder theory, which suggests that IBs should preserve the rights of all stakeholders. Hence, it is necessary to manage and disclose necessary information that enables IB stakeholders to make decisions. More importantly, the disclosure of the information is important, but stakeholders are more concerned with the readability of those disclosures. This study has conducted readability analysis by developing a bog index by Stylwriter. The bog index measure readability score indicates that the higher the score, the lesser the document’s readability. Our analysis results show less readability of all documents, but in comparison, Al-Baraka has higher readability with low disclosure of information; it can be inferred that the bank has used simple language but limited information. Whereas MIB and Faysal bank reports are difficult to read and have less disclosure levels from MIB, the bank is not properly disclosing information to its stakeholders. Additionally, full-fledged Islamic banks and window banking has not shown much difference in readability score. From a theoretical perspective, our analysis confirms the argument related to information asymmetry theory, which states that managers have more information about the firm than stockholders. The results proved that a low level of readability depicts the least knowledge about operations and compliance of SharÊ‘ah reports to the stakeholders. However, to be socially responsible, IBs must use less complex words and simple language. 6. Conclusion The purpose of this study is to investigate the extent of SharÊ‘ah disclosure and readability of banks of Pakistani banks. It has been deduced from the analysis that overall SharÊ‘ah disclosure is not satisfactory because the overall average of the index is below 60%, indicating that from 100 items, only 60 items are disclosed by banks in their annual report. On the other hand, what has been disclosed by the full fledge and Islamic Windows banks is less readable as the readability score is unsatisfactory since most of the index score lies in the bad or poor readability range. The Islamic banks’ low level of disclosure and reliability is alarming for the stakeholders and the State Bank of Pakistan, the Hamdard Islamicus Vol. XLVI, No. 2 79 main regulatory authority. Consequently, the regulatory authority might identify the minimum level of governance disclosure in annual reports. On the other hand, the results of this study provide insights for the Islamic banks to not only focus on the SharÊ‘ah disclosure but also on the importance of the reliability of the disclosure content by the stakeholders. 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