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Sustainability, Sharī‘ah Governance and Financial Performance: Evidence from Companies Listed on the Jakarta Islamic Index

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Wealth Management and Investment in Islamic Settings

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Abstract

This chapter analyzes the performance of the companies listed on the Indonesia Stock Exchange (IDX) under the Jakarta Islamic Index (JII). The purpose of our study is twofold: first, to examine the relationship between corporate sustainability practice and financial performance; second, to investigate the relationship of Islamic practice with financial performance, and thereby evaluate whether Islamic compliance moderates the relationship between corporate sustainability practice and financial performance. We analyze the performance of fifteen companies listed on the IDX Jakarta Islamic Index for five consecutive years from 2015 to 2019, based on their annual and sustainability reports. Data for financial performance is measured by three different proxies: Return on Assets, Return on Equity, and Ln Net Profit. Three Robust Ordinary Least Squares Regression Models were performed to test our research hypotheses. This study improves our knowledge since no previous study has investigated the research construct proposed and tested in this inquiry, it contributes to the current literature by providing evidence of a three-dimensional relationship between sustainability, Islamic practice and financial performance. And provides empirical insights for regulators who may utilize them as a basis for policy formulation in regulating corporate sustainability and Sharī‘ah practices.

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Notes

  1. 1.

    The small sample size provides lower statistical power thus reducing the likelihood of detecting the true effect and replication of study results (Button et al., 2013).

  2. 2.

    Summarized from https://www.ojk.go.id/id/kanal/syariah/data-dan-statistik/daftar-efek-syariah/default.aspx.

  3. 3.

    JASICA refers to the Indonesian Business Classification adopted by the Central Bureau of Statistics from the International Standard Industrial Classification (ISIC).

  4. 4.

    Although the banking sector is the most prominent segment of global Islamic finance, none of the banks in Indonesia was listed on the Jakarta Islamic Index during the period 2015–2018. During the course of 2019, Bank BTPN Sharia (BTPS) entered the system, making it the only bank thus far sitting on the Index. This shows that none of the banking companies meeting the sampling criteria to have been successively on the JII Index for the consecutive five-year period of 2015–2019.

  5. 5.

    Just last December, Indonesia along with a few other countries, was singled out by the UN Secretary General Antonio Guterres for its lack of commitment to carbon net zero emission (https://www.bbc.com/news/science-environment-55147647 https://www.theguardian.com/environment/2020/dec/09/rich-failing-help-fund-poor-countries-climate-fight-warns-un-chief-antonio-guterres).

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Authors and Affiliations

  1. Department of Accounting, Faculty of Economics and Business, Syiah Kuala University, Darussalam, Banda Aceh, Indonesia

    Zuraida Zuraida

  2. Department of Arabic, School of Tarbiyah and Education, Ar-Raniry State Islamic University, Darussalam, Banda Aceh, Indonesia

    Asna Husin

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  1. Zuraida Zuraida
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  2. Asna Husin
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Correspondence to Asna Husin .

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Editors and Affiliations

  1. College of Business and Economics, Qassim University, Saudi Arabia, Saudi Arabia

    Toseef Azid

  2. Rector STEI Tazkia, Bogar, Indonesia

    Murniati Mukhlisin

  3. College of Business and Economic, Qassim University, Saudi Arabia, Saudi Arabia

    Othman Altwijry

Appendix

Appendix

See Tables 16.5 and 16.6.

Table 16.5 Global Reporting Initiative (GRI) standard indicators
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Table 16.6 The Islamic Social Reporting (ISR) index
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Zuraida, Z., Husin, A. (2022). Sustainability, Sharī‘ah Governance and Financial Performance: Evidence from Companies Listed on the Jakarta Islamic Index. In: Azid, T., Mukhlisin, M., Altwijry, O. (eds) Wealth Management and Investment in Islamic Settings. Springer, Singapore. https://doi.org/10.1007/978-981-19-3686-9_16

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