96 IJIBEC Characteristics of the Sharia Supervisory Board (SSB) And Investment Account Holders (IAH) To Islamic Social Responsibility Disclosure (ISRD) In Islamic Banks Hirdinah Dewi Kenangsari1* and Falikhatun2 1,2 Departement Accounting, Faculty of Economics and Business, Universitas Sebelas Maret Jalan Ir. Sutami No.36 A Kentingan Surakarta 57126 1* Email: hirdinahdk@gmail.com 2 Email: falie.feuns17@gmail.com Abstract This study examines the effect of education level on the Sharia Supervisory Board (SSB), SSB doctoral ratio, and Investment Account Holders (IAH) on Islamic Social Responsibility Disclosure (ISRD) using the control variable of profitability and firm size. The object of the research is Islamic banks in the four countries with the highest percentage of poor people in the selected regional division of Asia and Europe: Indonesia (Southeast Asia), Bangladesh (South Asia), Jordan (West Asia), and Turkey (Southeast Europe), which published annual reports in 2013- 2019. The results showed that SSB education level and firm size positively affected ISRD, while IAH and profitability did not affect ISRD. Meanwhile, SSB doctoral ratio has a negative effect on ISRD. This research can provide consideration and input for Islamic Bank regulators in evaluating existing regulations. Future research is expected to add proxies for SSB characteristics and other variables in testing the effect of Islamic bank ISRD quality. International Journal of Islamic Business and Economics Available at http://e-journal.iainpekalongan.ac.id/index.php/IJIBEC ISSN 2599-3216 E-ISSN 2615-420X Vol 6 No 2 2022 Keywords: Islamic Social Responsibility Disclosure; Sharia Supervisory Board; Investment Account Holders; Islamic Bank. DOI 10.28918/ijibec.v6i2.4509 JEL: C12, G21, G30 Article Info Article History: Received : 17 October 2021 Accepted : 27 October 2022 Published : 1 December 2022 mailto:hirdinahdk@gmail.com mailto:falie.feuns17@gmail.com International Journal of Islamic Business and Economics (IJIBEC), 6(2) December 2022, 96-109 97 1. Introduction The importance of Islamic Social Responsibility Disclosure or ISRD for stakeholders, namely sharia government institutions, communities, people, and the environment, is that it can help make religious and economic decisions in a sharia company (Zafar & Sulaiman, 2019). It is because ISRD is a manifestation of accountability to God and stakeholders and a form of transparency in business activities that disclose various information to meet the spiritual needs of Muslim decision-makers (Bukhari et al., 2020; Santoso et al., 2018). ISRD is mandatory for sharia companies because companies that operate with sharia principles will automatically be socially responsible as a form of obedience to Allah's commands (Hussain et al., 2020; Setiawan et al., 2016). Islamic banks have grown rapidly, in the global market, with volumes approaching US$ 1.7 billion as of June 2020, marking a 72.4% share of banking assets globally. To the Islamic Financial Services Industry Stability Report 2020, there are at least 36 Islamic bank jurisdictions in the world, with an increase in the Islamic banking market occurring in 19 countries, including the Gulf-Cooperation Countries (GCC), the Middle East and North Africa (MENA) and the Asian region (Zulfahmi et al., 2021). According to the International Monetary Fund IMF, one of the causes of the success of the Islamic bank market is the existence of ethical principles and socially responsible business (Zulfahmi et al., 2021). The principles of ethics and socially responsible business in Islamic banks are called ISRD or Islamic Social Responsibility Disclosure. ISRD, according to the Accounting and Auditing Organizations for Islamic Financial Institutions (AAOIFI), is all activities carried out by Islamic financial institutions to fulfill religious, economic, legal, ethical, and discretionary responsibilities (AAOIFI, 2017). ISRD is mandatory for every Islamic bank because if it operates based on sharia principles, it will automatically be socially responsible (Hussain et al., 2020). However, various studies state that the quality of ISRD in Islamic banks is still low (Ahmad & Rahman, 2019; Nugraheni & Wijayanti, 2017; Sawitri et al., 2017). It is due to the absence of overall regulation on ISRD (Rimayanti & Jubaedah, 2017). So that the pressure of business competition and corporate religious awareness causes the quality of ISRD to increase (Ahmad & Rahman, 2019; Bukhari et al., 2020). In Islamic banks, there is a Sharia Supervisory Board (SSB) that supervises sharia compliance in Islamic banks (Elamer et al., 2019; Kamarulzaman & Madun, 2013). However, various studies have shown that the quantity of SSB members does not affect the quality of ISRD (Dewindaru et al., 2019; Meutia et al., 2019; Suryadi & Lestari, 2018; Wardani & Sari, 2019). It is because the individual quality of SSB members affects the quality of ISRD more than the quantity the number of SSB members (Dewindaru et al., 2019). In Hasan Mukhibad (2018), the educational background of Islamic economics, education, and doctoral education ratio member SSB positively affects the quality of ISRD. It means that higher education and relevant members of the SSB will increase the effectiveness of SSB Islamic banks in terms of increased ISRD quality (Mukhibad, 2018). This result is also in line with the research of Farook and colleagues, which showed that the higher the doctoral qualification and the international reputation of SSB, the higher the quality of ISRD (Farook et al., 2011). It is due to the increasing number of SSB members with higher education levels, the higher the level of supervision, independence, and the tendency of SSB, so the pressure on the SSB to encourage Islamic banks to improve the quality of ISRD is increasing. In this study, the researchers used the SSB education level and the SSB doctoral ratio as proxies for the SSB characteristics in their effect on ISRD quality. 98 International Journal of Islamic Business and Economics (IJIBEC), 6(2) December 2022, 96-109 Because of this research, the researcher considers the SSB characteristic variables and the IAH ratio can affect the quality of ISRD. It is due to the strategic position of SSB, which is equivalent to the board of commissioners (Meutia et al., 2019), and the IAH ratio is the ratio of savings deposits owned by customers as stakeholders of Islamic banks (Farook et al., 2011; Guermazi, 2020; Putri & Mardian, 2020). The ISRD measurement uses four themes, namely the theme of zakat, employees, communities, and the environment adopted from previous research, namely Othman & Thani (2010), Sofian & Muhamad (2020), and Brahim & Arab (2020). This study also uses cross-country studies based on the highest percentage of poor people in selected parts of Asia and Europe, namely Indonesia (Southeast Asia), Bangladesh (South Asia), Jordan (West Asia), and Turkey (Southeast Europe). The research year used is the latest, namely 2013- 2019. This study uses control variables in the form of profitability and firm size. Control variables are used because the independent variables are not influenced by external factors not examined in this study (Sugiyono, 2017). This study uses profitability because profitable businesses often aim to expand their social responsibility to persuade stakeholders, notably investors, that the business cares about more than just short-term effects (profit), such as long-term objectives (Chumaidah & Priyadi, 2018). Size is because larger companies tend to pay more attention to the running of their companies, so the tendency of information disclosure also increases (Hussain et al., 2020; Setiawan et al., 2016). This study used Islamic stakeholder theory. According to Islamic stakeholder theory, every employment and business activity is worship. Hence they must be carried out by Allah and follow His precepts, with Allah serving as the primary stakeholder and possessing all of the world's resources (Beekun & Badawi, 2005; Mohammed & Muhammed, 2017). This study contributes to filling the previous research gap where this study uses the variables of SSB education level, SSB doctoral ratio, and IAH ratio. In addition, the ISRD index used is a combination of the ISRD index in the previous research. This study used samples and the latest research year, namely Islamic banks in Indonesia, Bangladesh, Jordan, and Turkey in 2013-2019. This research also contributes, among others, as a reference for regulators in updating related regulations and establishing new regulations regarding ISRD Islamic banks, as a reference on Islamic stakeholder theory in developing hypotheses in further sharia research, as a reference for Islamic banks in evaluating and maximizing ISRD quality in sharia bank annual report, as a reference for investors in making investment decisions, as a reference for creditors in considering decisions to provide credit, and as a reference for the development of science and further research on ISRD. 2. Method The population in this study are Islamic banks located in Indonesia, Bangladesh, Jordan, and Turkey from 2013 to 2019. The sampling technique in this study uses a non-probability sampling method using particular criteria, which include a. Islamic banks are located in Indonesia, Bangladesh, Jordan, and Turkey from 2013 to 2019; b. Islamic banks are located in countries with the highest percentage of poor people in selected parts of Asia and Europe, namely Indonesia for Southeast Asia, Bangladesh for South Asia, Jordan for West Asia, and Turkey for Southeast Europe; c. Islamic banks have annual report data as of 31 December, which can be accessed online; d. Islamic banks have complete data regarding the variables used in the study; International Journal of Islamic Business and Economics (IJIBEC), 6(2) December 2022, 96-109 99 e. Islamic banks did not conduct mergers or acquisitions during the study period. By using purposive sampling, this study obtained 17 Islamic banks with 100 observations. The dependent variable of this study is Islamic Social Responsibility Disclosure (ISRD). Corporate social responsibility in an Islamic perspective or Islamic Social Responsibility Disclosure (ISRD) is an alternative philosophical framework based on sharia principles regarding the rules of human relations with nature and with fellow humans in business as a form of worship to Allah SWT (Khurshid et al., 2014). The ISRD proxy uses ISRD scores in the categories of zakat, employees, communities, and the environment that have been developed by previous researchers, namely Othman & Thani (2010), Sofian & Muhamad (2020); and Brahim & Arab (2020). Scoring is done by giving a score of 1 for companies that disclose each disclosure index and a score of 0 for companies that do not disclose any disclosure index in the annual report, then the number of ISRD scores disclosed is divided by the maximum value of the ISRD score (Brahim & Arab, 2020; Dewindaru et al., 2019; Farook et al., 2011; Fauziah & J, 2013; Hassan & Harahap, 2010; Hussain et al., 2020; Jaiyeoba et al., 2018; Jannah & Asrori, 2016; Jati et al., 2020; Khasanah & Yulianto, 2015; Kurniawati & Yaya, 2017; Meutia et al., 2019; Nissa & Asrori, 2017; Novrizal & Fitri, 2016; Nugraheni & Khasanah, 2019; Othman & Thani, 2010; Prasetyoningrum, 2019; Ramadhani, 2016; Rimayanti & Jubaedah, 2017; Rosiana et al., 2016; Santoso et al., 2018; Setiawan et al., 2016; Sulistyawati & Indah, 2017) The independent variable used Sharia Supervisory Board (SSB) education level, SSB doctoral ratio, and Investment Account Holders (IAH) ratio. SSB education level is proxied by giving a score of 3 to members with a doctoral education level, a score of 2 at the master's education level, and a score of 1 at the undergraduate education level, and then the total score is divided by the number of SSB members (Mukhibad, 2018). The SSB doctoral ratio is proxied by the ratio of SSB members who have a doctoral education background to the total SSB members (Mukhibad, 2018). The IAH ratio is proxied by the ratio of the total amount of third-party funds to the total amount of paid-in capital in shareholder equity (Astuti & Nurkhin, 2019; Charatunnisa & Muthmainah, 2019; Farook et al., 2011; Hikmatullah, 2019; Khasanah & Yulianto, 2015; Mukhibad, 2018; Nissa & Asrori, 2017; Zanjabil & Adityawarman, 2015). The control variable uses Profitability and Size. Profitability is measured using the Return on Equity or ROE ratio, which is the ratio between net income after tax and company capital (Hardian, 2016; Hijriah, 2019; Nugraheni & Wijayanti, 2017). Firm size is measured by the total assets of Islamic bank companies (Farook et al., 2011; Hussain et al., 2020; Meutia et al., 2019). The estimated model used in this study is as follows: 100 International Journal of Islamic Business and Economics (IJIBEC), 6(2) December 2022, 96-109 Figure 1. Model of Research The data were analyzed using a panel data regression analysis with time series and cross-section data. The panel data is then tested with the classical assumption test so that the panel data model becomes valid as an estimator. Then, the panel data model is selected between Common Effect, Fixed Effect, and Random Effects. There are three hypothesis testing carried out, namely the F statistical test, the multiple determination coefficient test (R2), and the t statistic test. The F statistical test is used to test the significant effect of the independent variables simultaneously on the dependent variable. The multiple determination coefficient tests (R2) are used to figure out the percentage variations of the dependent variables to the model explained by the independent variable. The statistical t- test is conducted to examine the effect of each independent variable on the dependent variable and assume that the other independent variables are constant. 3. Result and Discussion Research Samples and Descriptive Statistics The purposive sampling method used to determine the sample caused several banks to be eliminated, so the final sample used in this study was 17 companies with 100 observations. Table 1. Results of Descriptive Statistics N mean Maximum Minimum SD Dependent LOGISRD 100 -0.154 0.173 -0.551 0.132 Independent LOGPEND 100 0.316 0.424 0.154 0.079 DOCR 100 0.546 1 0 0.327 IAH 100 7.666 16.605 -1.085 3,824 Control ROE 100 0.053 0.161 -0.148 0.059 LOGSIZE 100 6.599 7.413 5.427 0.518 Source: Authors (2021), processed data The statistical test results in table 1 show that the sample tested was 100 observations. The average natural logarithm of Islamic Social Responsibility Disclosure or ISRD of Islamic International Journal of Islamic Business and Economics (IJIBEC), 6(2) December 2022, 96-109 101 banks in Indonesia, Bangladesh, Jordan, and Turkey in 2013-2019 is -15.4%. The maximum ISRD value is 17.3%, and the minimum ISRD value is -55.1%. For the Sharia Supervisory Board (SSB) education level variable, members with Ph.D. degrees receive a score of 3, master's degree holders receive a score of 2, and undergraduate students receive a score of 1. The total score is divided by the number of SSB members (Farook et al., 2011; Mukhibad, 2018). The average value of the natural logarithm of the education level of SSB members is 31.6%. The maximum value for the natural logarithm of the SSB education level is 42.4%, and the minimum value is 15.4%. The average value of the SSB doctoral ratio variable is 54.6%. This shows that, on average, half of the SSB members have a doctoral education background. This is in accordance with the IFSB's instructions that SSB requires members with doctoral degrees to be able to carry out the duties and functions of SSB properly (Ginena & Hamid, 2015). Even so, the minimum value of this variable is 0%, which indicates that there are SSBs that do not have members with a doctoral education background. The average value of the Investment Account Holder (IAH) ratio is 7.666, indicating that the average ratio of bank customer deposits to shareholder equity is 7.666. The maximum value of the IAH ratio is 16.605, and the minimum value of the IAH ratio is -1.085. The existence of a negative value is due to losses experienced by one of the Islamic banks every year, which causes the total equity to be negative. In the control variable, profitability is used as proxied by Return on Equity (ROE), and the size of Islamic banks is proxied by the natural logarithm of total assets. The average profitability of Islamic banks is 5.3%. The maximum value of profitability is 16.1%, while the minimum value of profitability is -14.8%. In the size of Islamic banks the average natural logarithm of the size of Islamic banks is 6.599, while the maximum value is 7.413 and the minimum value is 5.427. Normality Test In the test results, the probability value of the normality test in this study is 0.649253, which is greater than the significance value of 0.05. The research data has been normally distributed. Multicollinearity Test Table 2 shows that there is no correlation coefficient because all values do not exceed |0.8|, so it can be concluded that the data used does not experience multicollinearity problems. Table 2. Multicollinearity Test Results LOGPEND KEU IAH SIZE LOGSIZE LOGPEND 1 KEU 0.7681 1 IAH -0.223422 -0.158601 1 ROE -0.298029 -0.39662 0.347124 1 LOGSIZE -0.148951 0.012276 0.740331 0.515483 1 Source: Authors (2020), processed data Autocorrelation Test Autocorrelation test conducted by Durbin-Watson test by comparing the value Durbin- Watson statistic with Durbin-Watson on the table 3. The results of the autocorrelation test showed the calculated value of dW was 2.003306. Then the dL value shows a value of 1.571, a dU value of 1.7804, a 4-dU value of 2.2196, and a 4-dL value of 2.429. From the results of 102 International Journal of Islamic Business and Economics (IJIBEC), 6(2) December 2022, 96-109 this autocorrelation test, it can be concluded that the value of dW has a value greater than dU and less than 4-dU with the position dL