Shariah Supervisory Board Diversity, Sustainability Disclosure, and Bank Performance: Evidence from Pakistan
DOI:
https://doi.org/10.62843/jssr.v5i4.663Keywords:
Islamic Banking, Sustainability Disclosure, Shariah Supervisory Board, Board Diversity, Bank Performance, PakistanAbstract
This paper examines the relationship between sustainability disclosure and the performance of Pakistani Islamic banks, focusing on whether the diversity of the Shariah Supervisory Board (SSB) improves this relationship. The increasing relevance of sustainability transparency in the banking industry and the specific role of Shariah governance in Islamic financial institutions drive the theoretical framework used in the research, combining stakeholder theory and the resource-based view. The authors suggest that sustainability disclosure complements legitimacy, addresses information asymmetry, and enhances stakeholder trust, while SSB diversity serves as an intangible governance ability that can enhance the strategic advantages of disclosure. The paper employs a Sustainability Disclosure Index that encompasses general, economic, environmental, and social dimensions, alongside a composite SSB Diversity Index that incorporates demographic, educational, and professional heterogeneity, utilizing longitudinal panel data of Islamic banks in Pakistan from 2005 to 2024. The primary measure of financial performance is the return on assets (ROA), with the Tobin Q used as a strength check. The results indicate that sustainability disclosure positively impacts bank performance, SSB diversity positively influences performance, and the interaction between the two variables is positive, suggesting greater benefits for banks with more diverse SSBs. The paper combines sustainability disclosure, Shariah governance, and performance under a single framework and provides empirical evidence from Pakistan, a significantly sized but under-researched market in Islamic banking. The results have implications for policymakers, particularly the State Bank of Pakistan, and Islamic bank board managers, who must align governance quality, sustainability credibility, and financial performance.
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