Islamic Corporate Social Reporting Practices and the Link with

Financial Performance in the Malaysian Islamic Banking Industry

Nurliana Md Rahin

A thesis submitted for the degree of Doctor of Philosophy

Flinders Business School

Faculty of Social and Behavioural Sciences

Flinders University of South Australia

December

2014

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Abstract

The main aim of this thesis is to contribute to a better understanding of corporate

social reporting (CSRep) and economic performance from an Islamic perspective in the

context of Malaysia. This study develops an integrated framework to help provide a

more complete picture of Islamic CSRep. The proposed framework is tested to

understand the CSRep practices of Malaysian Islamic banks. This study also investigates

the extent of CSRep practices of Islamic banks in Malaysia before and after the

governance standards on Corporate Social Responsibility (CSR) conduct and disclosure,

were introduced at the end of 2009 by the Accounting and Auditing Organization for

Islamic Financial Institutions (AAOIFI). The study deals with quality and quantity of

CSRep in annual reports and stand-alone CSR reports. As previous studies that

specifically examine the relationship between CSR and financial performance in Islamic

banking are limited, this study first explores the relationship between CSRep and

traditional financial measures that are commonly used in Western studies, focusing on

efficiency of cost, revenue and profit. In addition however, the study explores the link

between CSRep and socio-economic accounting measures which are more aligned with

the socio-economic objectives of Islamic banks. The findings obtained from this study

suggested that Islamic CSRep in Malaysian Islamic banks, in general, is still low but

increasing in quantity and improving in quality. The major focus of disclosure in the

annual reports and CSR reports of Islamic banks is employees. Malaysian Islamic banks

are to some extent reflecting Islamic principles as expected from the CSRep

framework, but not wholly. The analysed data provides evidence that quality and

quantity of CSRep in Malaysian Islamic banks has increased since the introduction of

AAOIFI standards on CSR, even though the standards are not compulsory. There is

limited support that CSRep is related to financial performance and socio-economic

performance, however there is some evidence that CSRep when measured according

to the Standards is related to socio-economic indicators, particularly the profit sharing

ratio and Zakat performance ratio. The study also found that Islamic banks in Malaysia

tend to be more liberal in their Shariah interpretation in order to be competitive and

because of the multicultural nature of their constituents. Hence, the key contributions

to the literature of this study are the use of socio-economic performance variables as

additional empirical elements and to provide a contextual understanding of Islamic

CSRep through the use of a multicultural country setting.

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Declaration

I certify that this thesis does not incorporate without acknowledgement any

material previously submitted for a degree or diploma in any university; and that to

the best of my knowledge and belief it does not contain any material previously

published or written by another person except where due reference is made in the

text.

………………………………………………….. Nurliana Md Rahin

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Acknowledgements

Alhamdulillah, Praise be to Allah as He gave me the strength, good health and ‘rizq’

to complete this thesis. Many thanks to Him for helping me to overcome the

obstacles during the process.

Allah has also sent many individuals to help me in this PhD journey. I sincerely

would like to give the foremost gratitude to my supervisor, Prof. Carol Tilt for her

excellent supervision, insightful comments and constant guidance. The knowledge

and experience I gained from her is so precious. She is a friendly supervisor who

always gives encouragement and advice. My heartfelt gratitude is extended to my

co-supervisor, Dr. Nicholas Mangos for his constructive comments to improve the

thesis. My sincere thanks are also extended to Laurence Lester for his assistance in

statistics, writing part of panel regression introduction and running the regression

model.

I am greatly grateful to my parents, Md Rahin Awang and Nik Gayah Othman for

their love, prayers and continuous support. I would like also to express my

appreciation to my siblings and in-laws (Sazwani, Dalila, Raimi, Ruzaini, Azmir,

Diyad and Fatihah) and other family members for the encouragement. And my very

special thanks to my fiancé, Khusairy and his family members for the cheer and

patience.

I also would like to express my gratitude to the sponsors, the Ministry of Higher

Education, Malaysia and University of Malaya (UM) for the financial support. My

appreciation is extended to my colleagues at the Faculty of Business and

Accountancy, UM and friends in Malaysia. Also I would like to thank my friends in

Adelaide who shared their wonderful kindness, friendship and understanding

throughout my life as a PhD candidate. Lastly but not least, my appreciation goes to

the other academic and administration staff and fellow students at Flinders

Business School for their assistance and support.