The Empirical Linkages of Shariah Corporate Governance and Intellectual Capital: Evidence of Islamic Banks

Abstract

Using an unbalanced panel dataset of 59 Islamic banks (IBs) worldwide for the period of 2006- 2017, the principal aim of this study is to examine the impact of Shariah corporate governance mechanisms through the characteristics of Shariah board on intellectual capital (IC) efficiency. The characteristics of Shariah board members are represented through the size of the Shariah board (SBSIZE), the proportion of Shariah board members who have financing or accounting expertise (SBEXP), the number of Shariah board meetings held in a year (SBMEET), the proportion of female members on the Shariah board (SBFEM) and diversity in terms of Shariah board members’ nationalities (SBNAT). IC efficiency as the dependent variable has been measured using value added intellectual coefficient (VAIC). This study provides an empirical evidence showing that SBSIZE exerts significant positive impact on IC efficiency. This study also examines the impact of Shariah corporate governance mechanisms on IC components namely HCE, SCE and CEE and found that SBEXP exerts positive significant impact to HCE and SCE while no significant impact to CEE. In epitome, the empirical results emerging from this study render theoretical and managerial implications to banking industry especially for Islamic banking since the intellectual capital notion as well as the empirical studies on Shariah governance still relatively new. Paying attention on the results, it is interesting to note that Shariah board also plays a pivotal role in accelerating IC efficiency which in turn heading towards a better performance of IBs.