DOES SHARIAH COMMITTEE REMUNERATION IMPACT THE PERFORMANCE OF ISLAMIC BANKS IN MALAYSIA?
Keywords:
Shariah Committee, remuneration, bank performanceAbstract
The purpose of this study is to analyze the relationship between Shariah Committee (SC) remuneration and Islamic banks’ (IBs) performance. During a five-year analysis (2019 to 2023), the study used a quantitative research design to analyze secondary data on 15 Islamic banks. The study employed regression analysis by testing how SC remuneration, size, and educational qualification affected two main performance variables represented by Return on Assets (ROA) and Return on Equity (ROE). The results show that a positive impact on the ROE is significant and that SC remuneration positively impacts ROE and that well-paid SC members are more likely to increase shareholder value by stable governance and oversight. Nevertheless, the analysis indicates that SC remuneration does not have significant influence on ROA, thus operational efficiency may not be directly impacted by the governance over Shariah. Moreover, both SC size or educational qualifications indicated no significant correlation with ROA or ROE, showing that structural or demographic characteristics are apparently less decisive than governance incentive. The paper adds to the debate on Shariah governance by confirming that remuneration can be used as a way of motivating SC members and aligning their interests to those of the stakeholders as consistent with agency theory. It highlighted also the need to have a better regulation guideline and more openness in disclosures of SC remuneration to improve the practice of governance. The insights can guide regulators, including Bank Negara Malaysia and Islamic financial institutions, in the development of remuneration system based on integrity and accountability and Shariah compliance. Future research should adopt a broader scope of SC characteristics, apply qualitative methods, conduct cross-country comparisons, and advocate for standardized SC remuneration disclosures to enhance data accuracy and understanding of Shariah governance.Downloads
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