The effect of ethical values on Islamic banking performance

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Abstract

This research aims to determine the effect of ethical values on the financial performance of Islamic banking in Indonesia. This study uses the zakat disclosure index (ZDI) and the charity disclosure index (CDI) (Al-Homaidi, Al-Matari, Anagreh, Tabash, & Mareai Senan, 2021; Tuan Ibrahim, Hashim, & Mohamad Ariff, 2020) to measure ethical values and the capital adequacy ratio (CAR) to measure bank financial performance. This study hypothesizes that ethical values are positively related to bank financial performance. Data were collected from the zakat and charity disclosures made in the annual reports of 14 Islamic banks in Indonesia for ten years (2010–2019). The results showed that the ethical values, namely ZDI and CDI, positively affect the bank’s financial performance. The research limitation is the small number of samples because the number of Islamic banks in Indonesia is only 14. Future research is expected to increase the number of samples not only from Indonesia but also from other Muslim countries, as well as add further dimensions to measuring ethical values. This study provides an additional explanation of the relationship between ethical values and bank financial performance by investigating zakat and charity disclosure in Islamic banking in Indonesia, the country with the largest Muslim population globally.

Keywords: Ethical Values, Zakat, Charity, Disclosure, Financial Performance

Authors’ individual contribution: Conceptualization — M.A.S. and D.S.; Methodology — M.A.S. and D.S.; Formal Analysis — M.A.S. and D.S.; Writing — Original Draft — M.A.S. and D.S.; Writing — Revision & Editing — M.A.S. and D.S.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: G10, G21, G30

Received: 17.05.2022
Accepted: 19.08.2022
Published online: 24.08.2022

How to cite this paper: As Sahara, M., & Setiawan, D. (2022). The effect of ethical values on Islamic banking performance. Corporate & Business Strategy Review, 3(2), 34–42. https://doi.org/10.22495/cbsrv3i2art3