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The association of Islamic bank ethical identity and financial performance: evidence from Asia

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Abstract

This study aims to explore whether a discrepancy exists between the ideal and communicated (disclosed) ethical identity of Islamic banks in Asia and, further, whether there is any association of communicated ethical identity with financial performance. To achieve the objectives, the study analyses data derived from annual reports of Islamic banks in Asia for the period 2006–2010. The results suggest that out of the seven banks studied, three of them are above average and the rest suffer from disparity between the ideal and communicated ethical identities. Further, the study shows that the disclosure of a vision and mission statement; board of directors and top management; zakah, charity, and benevolent loans; and Shari’ah supervisory boards are negatively associated with performance, while the disclosure of products and services and commitment toward employees are positively associated with performance.

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Notes

  1. CEI may represent a firm’s voluntary disclosure of narrative information (See, for example, a discussion by Beattie et al. (2004) on the voluntary disclosure of narrative material).

  2. See, for example, a discussion by Beattie et al. (2004) on the voluntary disclosure of narrative material. “The narratives to be analysed are those voluntary disclosures contained in the company annual report and accounts”, which includes “highlights, chairman’s statement, CEO’s review, OFR, people, community, directors and advisors and captions from pictorial material” (Beattie et al. 2004, p. 215).

  3. Robb et al. (2001, p. 72) defined non-financial disclosure as the ‘qualitative information included in company annual reports, but outside the four financial statements and related footnotes’.

Abbreviations

BOD:

Board of directors

CAE:

Corporate applied ethics

CEI:

Corporate ethical identity

CI:

Corporate identity

CRE:

Corporate revealed ethics

EII:

Ethical identity index

GDP:

Gross domestic product

ROA:

Return on asset

SSB:

Shari’ah supervisory board

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Authors and Affiliations

  1. Accounting Department, Faculty of Economics and Business, Universitas Gadjah Mada, Yogyakarta, Indonesia

    Ahmad Zaki, Mahfud Sholihin & Zuni Barokah

  2. Faculty of Economics and Business, Universitas Gadjah Mada, Jl. Sosio Humaniora No. 01, Bulaksumur, Yogyakarta, 55281, Indonesia

    Ahmad Zaki

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  1. Ahmad Zaki
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Correspondence to Ahmad Zaki.

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Zaki, A., Sholihin, M. & Barokah, Z. The association of Islamic bank ethical identity and financial performance: evidence from Asia. Asian J Bus Ethics 3, 97–110 (2014). https://doi.org/10.1007/s13520-014-0034-7

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