Determinants of Sustainability Reporting of Islamic Banks in Emerging Countries

This study aims to determine the eﬀect of Islamic corporate governance and slack resources on sustainability reporting of Islamic Commercial Banks in Indonesia and Malaysia from 2015-2018. The corporate governance in this study consists of sharia supervisory board, the size, board of directors meeting, and audit committee. This is a quantitative study that used secondary data such as the annual and sustainability report. The reporting proxy was measured by the content analysis method which consisted of 78 items from the six dimensions adopted disclosure of AAOIFI. Furthermore, the analysis technique used was panel data regression with Random Eﬀect Model (REM) as the estimation model. The results showed that the sharia supervisory board has a negative eﬀect on sustainability reporting, while the board size, audit committee, and slack resources have a positive eﬀect. Meanwhile, the board of directors' meeting has no eﬀect on sustainability reporting. Therefore, the related government agencies such as Otoritas Jasa Keuangan (Financial Service Authority/FSA) and Bank Negara Malaysia are able to consider that the regulation related to the composition of sharia supervisory board for banking is in line with international ideal standards.


INTRODUCTION
According to The Global Islamic Finance Report, sharia banking assets grew to reach US $ 2,591 trillion in 2018 driven by global Islamic financial practices that bring good impact to various regions and continents, both in Asia, the Middle East, Africa, Europe, America, and Australia. The Ministry of Finance stated that Indonesia as the largest Muslim population in the world, is considered to be a bit left behind in the development of Islamic economics, but it has been ignored by the rapid development of Islamic financial institutions, especially in the banking sector since the last decade (Kemenkeu, 2018).
Bank Muamalat, one of the sharia commercial banks in Indonesia noted that in 2018, its financial performance in the last few years was not good. This is due to the problematic financing ratio which is too large, hence it decreased investors and investing funds (detikfinance.com, 2018). Also, The Financial Services Authority of Indonesia as the supervisor stated that problem occurs at Bank Muamalat due to an error in carrying out business strategies, not because of the lack of capital. This issue is related to the company's transparency to stakeholders and the sustainability concept. Unlike in Indonesia, Islamic finance supports the growth of Islamic commercial banks in Malaysia, thereby providing a good performance record (www.ram.com.my, 2019). Also, the difference between condition is related to transparency towards stakeholders.
A global investor survey highlighted by Ernst & Young stated that transparency is aimed at maintaining the entity's relationship with its stakeholders which is carried out by conducting social responsibility and disclosing it in the sustainability report (webforms.ey.com, 2015). In addition to aspects of sustainability, accountability, and transparency in implementing social responsibility, AAOIFI (2010) in the Governance Standard no.7 states that there are other aspects or requirements which needs to be qualified by financial institutions such as religiosity, economic, legal, ethical, and discretionary. Islamic banks, as a collector and distributor of funds, are essentially carrying out the principle of prioritizing the quality of life improvement (Haniffa & Cooke, 2002). Therefore, Islamic banks are required to conduct social responsibility in order not to be ignored by their operational activities. Meanwhile, the main purpose of disclosing social responsibility is as a means of banks in showing compliance with the sharia law (Baydoun & Willett, 2000). According to the World Business Council for Sustainable Development, several benefits obtained by companies through sustainability reporting are: being able to transparently provide information to stakeholder; building company reputation; as a resource in managing economic, social, and environmental impacts, as well as building a long-term trust to stakeholder.

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KPMG survey result stated that the driving factor for companies to conduct sustainability reporting is government regulation, hence the role of corporate governance is needed for decision making (hrasiamedia.com, 2017). Businesses which are managed by good governance will be more likely to remain sustainable (Prasojo, 2015). According to the General Guidelines for Sharia Business Good Governance Chapter IV, Islamic banking operations are managed by corporate governance which consists of general meetings of shareholders, a board of commissioners and directors, and a sharia supervisory board. These bodies are involved in strategic activities including sustainability reporting (Adams, Hermalin, & Weisbach, 2010).
The implementation of social responsibility and organizational sustainability reporting requires adequate resources (Xu, Yang, Quan, & Lu, 2015). Besides corporate governance, there is slack resources which could be an important factor to create sustainability synergy (Foss & Christensen, 2001). Furthermore, slack resources can be used by companies to adapt to internal and external changing conditions (Bourgeois, 1981). Sustainability reporting becomes a transparency medium for stakeholders to know whether all resources owned by the company are properly used and not deviated from the norm, therefore they do not have to worry about sustainability issue in the future (Branco & Rodrigues, 2006).
Previous studies by Arora and Dharwadkar (2011); Bukair and Rahman, (2015) also Ika, Dwiwinarno, and Widagdo (2017), showed the sharia supervisory board and corporate governance have a positive effect on CSR disclosure. Also, an effective corporate governance encourages companies to carry out social activities and disclose sustainability reporting. In contrast, Pratama and Yulianto (2015); Khasanah and Yulianto (2015); Siswanti, Salim, Sukoharsono and Aisjah (2017) Bastina and Bernawati (2019) found that sharia governance represented by the supervisory board and other corporate governance components has no effect on CSR disclosure.
This study also takes the perspective of slack resources besides corporate governance to encourage the realization of non-financial performance and sustainability reporting. Previous studies by Arora and Dharwadkar (2011); Anggraeni and Djakman (2017); and Kim, Shin, Shin, and Park (2019) concluded that slack resource has a positive effect on disclosure of social responsibility and sustainability. Other studies by Darus, Mad, and Yusoff (2014) contrary showed that slack resource has no effect on CSR disclosure.
By the various results of previous studies, this study is conducted using sample of Islamic commercial bank in Indonesia and Malaysia. Hence, the concept of sustainability reporting is adjusted to sharia aspects. The difference between this study and previous ones is the use of the variable Islamic corporate governance which is represented by sharia supervisory board, size, meetings, and audit committee. Therefore, this study aims to examine the effect of Islamic corporate governance and slack resources on sustainability reporting of Islamic Commercial Banks in Indonesia and Malaysia.
The existence of an implicit and explicit contract towards stakeholders encourages the realization of Islamic corporate governance. The supervisory board as part of the bank has the responsibility to supervise activities based on sharia principles. Furthermore, sustainable corporate activity followed by a proper disclosure is a form of corporate responsibility implementation towards God, stakeholders, and the natural environment. Farook, Hassan and Lanis (2011); Bukair and Rahman (2015); El Hussein (2018); and Mukhibad (2018), studied the influence of the sharia supervisory board on the CSR disclosure. The results showed that the number of boards influences CSR disclosure because the monitoring carried out is more effective. Previous studies also showed that the greater the size of the sharia supervisory board, the wider the sustainability reporting. The role of audit committee in supervision encourages the effective implementation of corporate governance, one of which is the principle of transparency that requires companies to reveal their business activities to stakeholders. Previous research by Aniktia and Khafid (2015) and Latifah et al. (2019) concluded that there is an influence between the audit committee on the disclosure of sustainability reporting. In this case, the committee is responsible for ensuring the company morally and ethically carry out business activities. The results of previous studies showed that the greater the size of the audit committee, the better the company supervision, hence the sustainability reporting will be more extensive.
H d: Audit committee has a positive effect on sustainability reporting. 1 Companies need resources to operate and be continually sustainable. To achieve this, the company needs stakeholders as one of the supporting components. Sustainability reporting becomes one of the transparency media to stakeholders (Branco & Rodrigues, 2006). The implementation of social responsibility and sustainability reporting make organization need adequate resources (Xu, Yang, Quan, & Lu, 2015). Anggraini and Djakman (2017)

METHOD
The data analysis method in this study is the analysis of the regression panel using Eviews 10. The processing step begins with estimation models selection, which included common, fixed, and random effect models. The chosen estimation model was random effect model. Sustainability reporting is measured using content analysis with scoring for each index.
Meanwhile, the disclosure aspects covered six parts with a total of 78 items adopted from AAOIFI (2010) regulations developed by Darus, et al. (2014). The six disclosure parts include

RESULTS AND DISCUSSION
Samples obtained by the purposive sampling method were 14 BUS in Indonesia and 7 BUS in Malaysia for the period of 2015-2018. Some banks need to be eliminated because they do not meet the criteria, hence the final sample used for this study was 81 observational data. Meanwhile, the largest number of board sizes was 11 and the smallest was 2. Some differences are too far, but there are no standards that set the minimum limit of board a company can own including banking. According to the Bank for International Settlement (www.bis.org, 2016), the boards of directors number is adjusted to the size and complexity of the bank.
Board of directors meeting with an average value of 23,925, means that the board of directors physical meeting generally ranges from 24 times. According to the Bank for International Settlement (www.bis.org, 2016), the meeting frequency is adjusted to the size, complexity, structure, and risk of the related bank. The maximum number of board meetings was 48, with a minimum of 3. The audit committee was measured by the number of meetings with an average value of 11,580, which means 12 average meetings are conducted by the audit committee. The maximum meeting intensity was 37 and the minimum was 3. Furthermore, the standard deviation of 6.143 was smaller than the average value, hence the data distribution was small. This means that there is no large gap in the size of the largest and smallest audit committee. Hypothesis tests in this study include the F statistical test, the coefficient of multiple 2 determination test (R ), and the statistical t-test. Previously, a classic assumption test that had been conducted consisted of normality, multicollinearity, heteroscedasticity, and autocorrelation test. The results showed that the data were normally distributed and free from multicollinearity and heteroscedasticity.

Tabel 2. Regression Test Results
Sources: Data Processing Results (2020) Islamic banks, and the smaller the information delivered. These results are consistent with Sukmadilaga and Lestari (2017), which stated that the board has a negative effect on disclosures. These results showed the lack of attention given to Islamic banks, therefore it is necessary to optimize the role in increasing reporting disclosure. It is also in line with Khoirudin (2014); and Hu and Loh (2018). Also, the board of directors is a top-level body in the management mechanism, especially in making strategic policies that managers need to follow.
Also, the bigger size of directors can increase collective experience and expertise, hence the need for disclosure fulfillment is high.
The t-test statistical value obtained by the board of directors meeting variable is 0.302 at a significance level of 5%, therefore the board of directors meeting does not have a significant effect on sustainability reporting. These results support Hasanah, Syam, and Jati (2017) and Ju Ahmad, Rashid, and Gow (2017) that board of directors meeting does not affect the sustainability reporting disclosure. However, these results do not support the general belief that board meeting coordination is important for better reporting. According to Hasanah, Syam, and Jati (2017), the results of the board meeting only focused on the discussion of financial statements because sustainability reports were only applied compulsorily by several companies in Indonesia. Ju Ahmad, Rashid, and Gow (2017) stated that although the board of directors meeting is important for protecting the shareholders' interests, the meeting was not properly carried out, especially in Malaysia. This is because companies in the country are dominated by family ownership, therefore several strategic positions are occupied by the same people which cause conflicts and decisions made are less efficient. According to Menon and Williams (in Ju Ahmad, Rashid, & Gow, 2017), companies need to consider the role of board of directors meeting because the number of meetings indicates that the results were less optimal, therefore considered inefficient. Further, Vafeas (also in Ju Ahmad, Rashid, & Gow, 2017) adds that directors' meetings need to be more reactive than proactive. Therefore, the results of this study are not consistent with previous ones namely Suryono and Prastiwi (2010), Latifah et al. (2018), and Hu and Loh (2018).
The probability value of the audit committee influence on sustainability reporting showed 0.023 with a coefficient value of 0.047 indicating a positive direction. These results support Aniktia and Khafid (2015) that the audit committee as part of the corporate governance mechanism has a positive effect on the sustainability reporting disclosure. This is also in line with Latifah et al. (2019) which showed that the committee influences the disclosure of sustainability reporting. Furthermore, the audit committee is responsible for providing the needs of directors by providing advice and recommendations on the company's business continuity under relevant regulations, principles, and ethical standards (Al-Bhaidani, 2014). In addition, the increased intensity of audit committee meetings increases awareness and experience among members, hence the disclosure of non-financial information in sustainability reporting is wider (Buallay & AlDhaen, 2018).  (1981) is an excess of actual and potential resources possessed to be used by organizations in adapting to internal and external pressures. As the concept of Hodgson (1998) that a company is a collection of various kinds of resources, the impulse of the company appears to be used as a form of responsibility. From an Islamic perspective, this is supported in QS al-Baqarah (2): 29 that humans as leaders have been trusted in the management of resources. In addition, the existence of slack resources can be used by companies in implementing sustainability activities and determining policies, therefore sustainability reporting becomes wider.

CONCLUSION
This study concluded several things, firstly, the sharia supervisory board, the board size and meetings, audit committee, as well as slack resources affect sustainability reporting.
Secondly, the results partially showed that out of the four components of Islamic Corporate Governance, the board size, and audit committee have a positive effect on sustainability reporting.
Thirdly, the sharia supervisory board has a negative effect. Fourth, the board of directors' meeting does not affect sustainability reporting, while fifth, slack resource has a positive effect.