Islamic Corporate Governance in the Halal Industry: Sharia Supervisory Board, Sharia Compliance, and Reputational Risk in Sharia Issuers
##plugins.themes.bootstrap3.article.sidebar##
##plugins.themes.bootstrap3.article.main##
Abstract
This study examines the role of Islamic Corporate Governance
(ICG)—with a focus on the Sharia Supervisory Board (SSB)—in
enhancing sharia compliance and reducing reputational risk in
sharia-compliant issuers, as well as its implications for investor
confidence. Using a company-year panel design (±2019–2025)
across halal sectors (financial and non-financial), the study
develops two auditable constructs: the Sharia Supervision Quality
Index (IKPS) (SSB competence & independence, meeting intensity,
depth of sharia review/audit, follow-up and integration with risk
management) and the Substantive Sharia Compliance Index (IKSS)
(specificity of contract/material/supplier disclosure, non-halal
exposure metrics, supplier assurance, and remediation rate).
Reputational risk (REPRISK) is derived from sharia violation
events/news and market indicators, while investor confidence
(TRUST) is proxied by the cost of equity capital (COE) and valuation
(Tobin's Q/PBV). Estimation is performed using fixed-effects panel
regression (firm & year), multilevel mediation test (IKPS → IKSS →
REPRISK → TRUST) using bootstrapping, and moderation by halal
exposure (HEX); robustness is tested through alternative proxies
and index redefinition. The main results show that IKPS positively
influences IKSS, and IKSS decreases REPRISK. Furthermore, high
IKSS and low REPRISK are associated with lower COE and higher
valuations, confirming the ICG value channel through compliance
and reputation. This effect is stronger in companies with high HEX,
indicating the importance of sharia materiality. The research
contribution lies in the comprehensive and auditable measurement
of ICG processes and outcomes, the exploration of step-by-step
mediation mechanisms towards investor trust, and the examination
of heterogeneity of effects based on halal exposure. Practical
implications emphasize strengthening the capacity and
independence of the SSB, expanding the scope of sharia audits,
accelerating the closure of findings, and transparent, metric-based
disclosures to build credibility of halal reputation and long-term
value.
##plugins.themes.bootstrap3.article.details##
Financial Institutions.
AAOIFI. (2010). Governance Standard No. 1: Shari’ah Supervisory Board—Appointment,
Composition and Report. AAOIFI.
AAOIFI. (2010). Governance Standard No. 3: Internal Shari’ah Review. AAOIFI.
IFSB. (2009). Guiding Principles on Shari’ah Governance Systems for Institutions
Offering Islamic Financial Services (IFSB-10). Islamic Financial Services Board.
Bank Negara Malaysia. (2019). Shariah Governance Policy Document . Kuala Lumpur:
BNM.
Chapra, M. U., & Ahmed, H. (2002). Corporate Governance in Islamic Financial
Institutions. Islamic Research and Training Institute (IRTI).
Garas, S., & Pierce, C. (2010). Shari’ah supervision of Islamic financial institutions.
Journal of Financial Regulation and Compliance, 18(4), 386–407.
Grassa, R. (2013). Shari’ah supervisory systems in Islamic finance institutions across
the OIC countries. Journal of Financial Regulation and Compliance, 21(4), 362–
381.
Hasan, Z. (2011). A survey on Shari’ah governance practices in Malaysia, GCC countries
and the UK. International Journal of Islamic and Middle Eastern Finance and
Management, 4(1), 30–51.
Mollah, S., & Zaman, M. (2015). Shari’ah supervision, corporate governance and
performance: Evidence from Islamic banks. Journal of Banking & Finance, 58,
418–435.
Mollah, S., Hassan, M. K., Al-Farooque, O., & Mobarek, A. (2017). The governance, risktaking,
and performance of Islamic banks. Journal of Financial Services
Research, 51(2), 195–219.
Farook, S., Hassan, M. K., & Lanis, R. (2011). Determinants of corporate social
responsibility disclosure: The case of Islamic banks. Journal of Islamic
Accounting and Business Research, 2(2), 114–141.
Nomran, N. M., Haron, R., & Hassan, R. (2018). Shari’ah Supervisory Board
characteristics effects on Islamic banks’ performance. International Journal of
Bank Marketing, 36(2), 290–304.
Lewis, M. K. (2005). Islamic corporate governance. Review of Islamic Economics, 9(1),
5–29.
Islamic Corporate Governance in the Halal Industry: Sharia Supervisory Board, Sharia
Compliance, and Reputational Risk in Sharia Issuers – Anggi Aulia
Page 81 of 11
DSN–MUI. (2020). Himpunan Fatwa Dewan Syariah Nasional—Majelis Ulama Indonesia
(edisi terbaru). Jakarta: DSN–MUI.
Otoritas Jasa Keuangan (OJK). (2017). POJK No. 35/POJK.04/2017 tentang Kriteria dan
Penerbitan Daftar Efek Syariah. Jakarta: OJK.
Otoritas Jasa Keuangan (OJK). (2015). POJK No. 17/POJK.04/2015 tentang Pedoman
Tata Kelola Perusahaan Terbuka. Jakarta: OJK.
Republik Indonesia. (2014). Undang-Undang No. 33 Tahun 2014 tentang Jaminan
Produk Halal (JPH). Jakarta: Sekretariat Negara.
Republik Indonesia. (2019). Peraturan Pemerintah No. 31 Tahun 2019 tentang Peraturan
Pelaksanaan UU JPH. Jakarta: Sekretariat Negara.
IFSB. (2018). Core Principles for Islamic Finance Regulation—Banking (CPIFR). Islamic
Financial Services Board.