The Moderating Role of SSB Conflicts of Interest and Audit Committee Independence in Good Corporate Governance and Islamic Bank Performance in Indonesia
Abstract
1. Introduction
- How does Good Corporate Governance (GCG) influence the financial performance of Islamic banks in Indonesia?
- Does the proportion of Sharia Supervisory Board (SSB) members with conflicts of interest weaken the relationship between GCG and Islamic bank financial performance?
- Does the proportion of independent Audit Committee (AC) members strengthen the relationship between GCG and Islamic bank financial performance?
2. Theoretical Review
3. Methods
- Full-fledged Islamic Commercial Banks (Bank Umum Syariah) as per OJK regulations.
- Islamic banks consistently published their annual reports throughout the observation period (2014–2023).
- Islamic banks, whose annual reports provided the complete data necessary for all the variables used in this study.
3.1. Operational Definitions and Measurement of Variables
- Islamic Bank Financial Performance (Dependent Variable): Measured by Return on Assets (ROA), a widely accepted profitability ratio calculated as net profit divided by total assets. A higher ROA indicates greater efficiency in utilizing assets to generate profits. ROA was chosen as a robust measure of financial performance because it reflects both profitability and asset utilization efficiency, providing a comprehensive view of a bank’s operational success.
- Good Corporate Governance (GCG) (Independent Variable): Measured using the GCG self-assessment scores published in the annual reports of Islamic banks. These scores are typically assessed based on OJK regulations (for example, POJK No. 5/POJK.03/2016 concerning Good Corporate Governance for commercial banks), covering aspects such as transparency, accountability, responsibility, independence, and fairness. Scores are usually provided on a scale (e.g., 1 to 5, where 1 is “very poor” and 5 is “very good”). Higher scores indicate better GCG implementation. While acknowledging the subjectivity and limited scale of self-assessment scores, these scores are justified for capturing the multidimensional construct of good corporate governance because they are based on standardized regulatory frameworks provided by the OJK. These frameworks mandate a comprehensive evaluation of key GCG principles (transparency, accountability, responsibility, independence, and fairness), ensuring a structured and consistent assessment. Furthermore, given the highly regulated nature of the banking industry, self-assessments, when regularly monitored by regulatory bodies, provide an official and publicly reported proxy for compliance and quality of governance. OJK’s oversight adds a layer of credibility to these internal assessments, making them a practical and accessible measure for cross-sectional and time-series analysis within the Indonesian context.
- SSB Conflicts of Interest (Moderating Variable 1): Measured by the proportion of SSB members who hold cross-memberships in other Islamic Financial Institutions (IFIs) or positions in the management/board of directors of the same or other Islamic banks. This was calculated as the number of SSB members with identified conflicts of interest divided by the total number of SSB members. A higher proportion indicates greater potential for conflicts of interest. This measure was chosen to quantify the potential for conflicts of interest, reflecting the extent to which SSB members’ multiple affiliations might compromise their objectivity and independence.
- Audit Committee (AC) independence (Moderating Variable 2): Measured by the proportion of independent members within the Audit Committee. This was calculated as the number of independent AC members divided by the total number of AC members. A higher proportion indicates greater AC independence, which is expected to enhance oversight capabilities. This variable reflects the commitment of Islamic banks to transparent and unbiased financial oversight, which is crucial for effective corporate governance.
3.2. Econometric Model and Data Analysis
4. Empirical Findings
4.1. Regression Results
4.2. Robustness Test Results
5. Discussions
5.1. The Effect of GCG on Financial Performance
5.2. The Moderating Effect of SSB Conflict of Interest
5.3. The Moderating Effect of Audit Committee Independence
5.4. Multicollinearity and Robustness Checks
6. Conclusions, Implications, and Future Research
6.1. Implications
- For Practitioners (Islamic Banks) should prioritize establishing and maintaining independent audit committees to strengthen their governance frameworks and enhance financial performance. While SSB cross-membership did not show a detrimental moderating effect in this study, banks should still implement robust oversight mechanisms to effectively manage any potential conflicts of interest that may arise. Focusing on improving overall GCG practices is crucial as it directly contributes to better financial outcomes.
- For Regulators (Indonesian Financial Services Authority—OJK and similar bodies), regulatory bodies like the OJK should continue to emphasize and enforce the importance of audit committee independence in their governance guidelines for Islamic banks. This study reinforces the notion that strong, independent oversight through the AC is a key driver of financial performance in the Islamic banking sector. Regulators may also consider providing clearer guidelines or frameworks for managing the potential benefits and risks associated with SSB cross-membership.
- For Stakeholders (Investors and Customers), the positive relationship between GCG and financial performance suggests that investors and customers can consider strong GCG practices, particularly the independence of the Audit Committee, as a positive indicator of an Islamic bank’s stability and profitability.
6.2. Limitations and Future Research
Author Contributions
Funding
Institutional Review Board Statement
Informed Consent Statement
Data Availability Statement
Conflicts of Interest
References
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Variables | Codes | Definition | References |
---|---|---|---|
Bank Performance Indicator (Independent) Return on Assets | ROA | Ratio of operating income over assets | (Aslam & Haron, 2020; Harisa et al., 2019; Elamer et al., 2020) |
SSB and AC Characteristics (Moderator) Ratio of Dual SSB | Z1 | Proportion of Dual SSB Members. | (Rashid, 2013; Yammeesri & Herath, 2010) |
Ratio of Independent AC | Z2 | Proportion of Independent Board members on Audit Committee. | (Van Essen et al., 2013; Yammeesri & Herath, 2010) |
Good Corporate Governance (Dependent) Self-Assessed GCG Score | GCG | The results of the self-assessment of GCG rating in accordance with Bank Indonesia and OJK regulation (Surat Edaran Bank Indonesia Nomor 15, 2013). | (Harisa et al., 2019; Haryati & Kristijadi, 2014) |
Bank Characteristics (Control Variables) | |||
Bank Size | K1 | Bank total assets. | (Srairi et al., 2022; Elamer et al., 2020; Darwanto & Chariri, 2019) |
Gross Non-Performing Loan | K2 | The ratio of gross non-performing loan. | (Mukhibad et al., 2022; Darwanto & Chariri, 2019; Haryati & Kristijadi, 2014) |
Net Non-Performing Loan | K3 | The ratio of net non-performing loan. | (Mukhibad et al., 2022; Darwanto & Chariri, 2019; Haryati & Kristijadi, 2014) |
Capital Adequacy Ratio | K6 | The ratio of Total Capital to Risk Weighted Assets (RWA). | (Darwanto & Chariri, 2019) |
Efficiency Ratio | K7 | Operations efficiency, which is percentage of cost to income. | (Haryati & Kristijadi, 2014) |
Financing to Deposit Ratio | K8 | Financing to total deposit ratio. | (Iramani et al., 2018). |
Variable | Coef. | Std. Err | t | Probability |
---|---|---|---|---|
gcg | −3.89 | 0.87 | −4.45 | 0.000 (***) |
Constanta | 8.14 | 1.82 | 4.47 | 0.000 (***) |
Variable | Coef. | Std. Err | t | Probability |
---|---|---|---|---|
gcg | −4.03 | 0.90 | −4.48 | 0.000 (***) |
Z2 | 0.04 | 0.13 | 0.31 | 0.755 |
Percentage of Z2 | 0.12 | 0.12 | 1.04 | 0.299 |
Z1 | 0.01 | 0.02 | 0.67 | 0.501 |
Constanta | 2.39 | 13.77 | 0.17 | 0.863 |
Variable | Coef. | Std. Err | t | Probability |
---|---|---|---|---|
gcg | −4.09 | 0.86 | −4.73 | 0.000 (***) |
Z2 | 0.08 | 0.04 | 2.06 | 0.042 (**) |
_cons | 7.85 | 1.80 | 4.37 | 0.000 (***) |
Variable | Coef. | Std. Err | t | Probability |
---|---|---|---|---|
gcg | −6.96 | 9.15 | −0.76 | 0.449 |
Z2 | 0.00 | 0.29 | 0 | 0.997 |
Percentage of Z2 | 0.08 | 0.12 | 0.64 | 0.525 |
Z1 | −0.02 | 0.06 | −0.27 | 0.791 |
Z2_gcg | 0.03 | 0.10 | 0.35 | 0.728 |
Percentage of Z2_gcg | 0.08 | 0.02 | 3.44 | 0.000 (***) |
Z1_gcg | 0.01 | 0.03 | 0.30 | 0.763 |
_cons | 5.126 | 28.476 | 0.180 | 0.858 |
gcg | −3.62 | 1.20 | −3.02 | 0.003 (***) |
Percentage of Z2_gcg | 0.086 | 0.019 | 4.440 | 0.000 (***) |
_cons | 5.437 | 2.464 | 2.210 | 0.03 (**) |
gcg | −2.80 | 0.87 | −3.20 | 0.002 (***) |
Percentage of Z2_gcg | 0.076 | 0.016 | 4.780 | 0.000 (***) |
clta | 0.884 | 0.468 | 1.890 | 0.062 (*) |
cnpf | −0.27 | 0.10 | −2.67 | 0.009 (***) |
cnpfn | 0.34 | 0.42 | 0.81 | 0.423 |
cnim | −0.126 | 0.065 | −1.920 | 0.058 (*) |
cncar | 0.02 | 0.01 | 1.75 | 0.084 (*) |
cnfdr | 0.02 | 0.01 | 2.22 | 0.029 (**) |
_cons | −11.387 | 8.063 | −1.410 | 0.161 |
Test | Hasil | ||
---|---|---|---|
Chow test | CEM/FEM | ||
F(9, 82) | 0.98 | ||
Prob | 0.4607 | CEM | |
Hausman test | FEM/REM | ||
chi2(8) | 6.4 | ||
Prob | 0.603 | REM | |
LM Test | REM/CEM | ||
chibar2(01) | 1.96 | ||
Prob | 0.0808 | CEM |
Multicollinearity | |
---|---|
Mean VIF | 1.55 |
Normality distribution error term | |
Shapiro–Wilk W test for normal data | |
Prob Z | 0.83389 |
Heteroscedasticity | |
chi2(1) | 0.01 |
Prob | 0.9096 |
autocorrelation | |
F(1, 9) | 2.354 |
Prob | 0.1593 |
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Simanjuntak, J.M.; Faizi, F.; Kusuma, A.S. The Moderating Role of SSB Conflicts of Interest and Audit Committee Independence in Good Corporate Governance and Islamic Bank Performance in Indonesia. J. Risk Financial Manag. 2025, 18, 466. https://doi.org/10.3390/jrfm18080466
Simanjuntak JM, Faizi F, Kusuma AS. The Moderating Role of SSB Conflicts of Interest and Audit Committee Independence in Good Corporate Governance and Islamic Bank Performance in Indonesia. Journal of Risk and Financial Management. 2025; 18(8):466. https://doi.org/10.3390/jrfm18080466
Chicago/Turabian StyleSimanjuntak, Jerry Marmen, Faizi Faizi, and Airlangga Surya Kusuma. 2025. "The Moderating Role of SSB Conflicts of Interest and Audit Committee Independence in Good Corporate Governance and Islamic Bank Performance in Indonesia" Journal of Risk and Financial Management 18, no. 8: 466. https://doi.org/10.3390/jrfm18080466
APA StyleSimanjuntak, J. M., Faizi, F., & Kusuma, A. S. (2025). The Moderating Role of SSB Conflicts of Interest and Audit Committee Independence in Good Corporate Governance and Islamic Bank Performance in Indonesia. Journal of Risk and Financial Management, 18(8), 466. https://doi.org/10.3390/jrfm18080466