Journal of Islamic Monetary Economics and Finance (JIMF)
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Diversifying Islamic Haven Assets
Full text linkThis study reassesses the safe haven properties of gold and Sukuk using a new framework that incorporates nonstationary volatility and proposes a trading strategy to construct a gold – Sukuk – Islamic equities portfolio that can outperform the hard-to-beat naïve method and the covariance-based approaches. In line with previous studies, it employs data of four exchange-traded funds: Dow Jones Global Sukuk, Wahed FTSE USA Shariah, MSCI Emerging Market Islamic, and SPDR Gold. In the study, an enhanced version of wavelet quintile correlation is proposed to re-evaluate the haven qualities of gold and Sukuk. The results show that gold and Sukuk are safe haven assets. Next, applying a dual momentum strategy, we demonstrate that the risk-adjusted returns of our proposed trading strategy outshine the naïve method and the covariance-based approaches. Our research employs real returns and a rolling window approach to avoid money illusion, overfitting, look-ahead bias, and flawless hindsight. The main results prevail in the robustness tests
A Maqasid-Based Welfare Index in Indonesia: An Empirical Investigation
Full text linkAcknowledging the importance of having an alternative welfare measurement to the prevailing material-based conventional welfare index, this study formulates a maqasid-based welfare index that encapsulates the material, spiritual, and social needs of individuals and then calculates the index for all regions in Indonesia. Our proposed index is based on a comprehensive set of maqasid indicators and on appropriate weighting of each maqasid indicator to arrive at the index scores for all regions in the country. From the results, four provinces in Indonesia are at the high level of Maqasid-based welfare. They are Aceh, Nusa Tenggara Barat, Gorontalo, and Sulawesi Barat. Meanwhile, twenty-five provinces are at the medium range of welfare. The index we compute for each region should prove useful as it would allow policymakers to tailor welfare strategies to each province’s strong and weak areas of the maqasid al-shariah.
ACKNOWLEDGEMENT
Special thanks to Universitas Muhammadiyah Malang and International Islamic University Malaysia for their research support and valuable resources provided throughout this study
A Literature Review of Updated Islamic Corporate Governance Elements: Implications for Indonesia
Full text linkThis study identifies elements of Islamic Corporate Governance (ICG) that contribute to the performance of shariah-compliant firms. A systematic literature review is carried out on 173 relevant articles from the Scopus database, spanning from 2004 to 2024. It identifies five key elements of ICG: (1) Shariah board governance, (2) management and board governance, (3) audit and risk governance, (4) sustainable governance, and (5) Muslim management and board governance. These key elements encompass various sub-elements that have diverse impacts on firm performance across financial, social, and environmental dimensions. The findings offer specific implications for Indonesia, emphasizing the integration of sustainability practices into corporate governance mechanisms and considering distinct approaches to ICG mechanisms for dual-sector performance between Islamic Financial Institutions (IFIs) and non-IFIs.
ACKNOWLEDGEMENT
The paper is supported by sponsorship from the Indonesia Endowment Fund for Education (LPDP), whose sponsorship has played a crucial role in facilitating the research process. The authors deeply appreciate this support and are grateful for the opportunities it has provided. The authors also gratefully acknowledge the valuable comments provided by the journal's editors and reviewers
Does Geopolitical Risk Matter for ASEAN5 Economies? Evidence on Conventional and Islamic Compliant Indices
Full text linkWe assess the interlinkage of geopolitical risk and returns of conventional and Shariah Compliant indices from five ASEAN economies for the period Jan 2019 – Mar 2023 using daily data. We assess this phenomenon through the lens of the Efficient Market Hypothesis (EMH) and Risk and Return Theory. The sampled indices belong to Morgan Stanely Capital International (MSCI) and Standard and Poor (S&P). We employ Quantile Regression and Wavelet Coherence approaches. The results reveal that geopolitical risk does not significantly affect ASEAN5 indices for both conventional and Shariah Compliant categories. Moreover, there is very little dynamic co-movement between geopolitical risk and sampled indices. Malaysia and Indonesia emerge as the countries exhibiting the least co-movement and offer safe haven properties against geopolitical risk. The findings carry important implications for investors and policymakers
Does Digital Financial Inclusion Impact ESG Performance in Islamic and Conventional Financial Institutions? A Global Evidence
Full text linkThis study investigates the impact of digital financial inclusion on corporate ESG performance using a global sample of 660 conventional and Islamic institutions from 2010 to 2022. The study reveals that digital financial inclusion can significantly promote corporate ESG performance. What sets this study apart is its use of the novel methodology of fixed effects model and Methods of Moments Quantile Regression (MMQR) to empirically identify how digital financial inclusion affects corporate ESG performance from lower to higher quantiles (0.1 to 0.9). Further, the analysis using 1st and 2nd SLS shows that digital financial inclusion has a more pronounced impact on Islamic banks' ESG scores, mainly when involved in the high implementation of digitalization. These significant results are assured by legitimacy and stakeholder theories. ESG factors have been significantly affected by adopting modern digital applications and platforms in regulated industries of Islamic institutions. Sub-Sample analysis of financial institutions and heterogeneity analysis of more and less board independence and board size significantly impact implementing digital financial inclusion and ESG performance, instilling the need to mitigate banks' risks by disclosing non-financial information and resolving agency conflicts among stakeholders aimed at investing in sustainable green projects. Finally, our results remain robust after addressing endogeneity issues and conducting robustness checks, offering new insights into the evolving digital financial inclusion and ESG performance
Exploring Customer Loyalty Drivers in Indonesian Islamic Bank After Cybersecurity Breaches Using SEM Approach
Full text linkThis study explores the factors influencing customer loyalty at Bank Syariah Indonesia (BSI) after cyberattacks, using the Expectation Confirmation Theory (ECT) as the theoretical framework. A quantitative approach with Partial Least Squares-Structural Equation Modeling (PLS-SEM) is applied, analyzing data from 225 customers affected by service disruptions, ATM use, and Mobile Banking. The findings indicate that customer loyalty is significantly affected by service quality, religiosity, and customer trust. Furthermore, customer trust after a cyberattack is significantly influenced by service quality and religiosity. The Compliance, Assurance, Reliability, Tangibles, Empathy, and Responsiveness (CARTER) model is used to measure service quality, emphasizing both technical and ethical aspects. The results highlight the importance of successful crisis management, clear communication, improved security, and compensating customers in retaining and potentially growing the customer base post-attack. This research underscores the significance of the CARTER model in evaluating service quality and the role of religiosity in fostering customer loyalty. The study emphasizes that Islamic banks should integrate technical and ethical aspects of service to minimize negative impacts and maintain customer loyalty
ESG Commitment and Bank's Default Risk in Emerging and Developing Countries: Does Islamic Bank Matter?
Full text linkThis paper examines the impact of ESG commitment on banks’ default risk in emerging and developing countries. Using a panel dataset comprising 157 banks from 28 countries over the period 2016-2022 and the Two-Step Generalized Method of Moments (2-Step GMM), it reveals that banks’ ESG commitment reduces banks’ probability of default (PD). Islamic banks also matter for ESG commitments, where Islamic banks have a higher probability of default than conventional banks while committing to the governance pillar. The findings of the study imply that financial authorities and banking institutions in emerging and developing countries need to spur banks’ ESG commitment. However, it must be carefully implemented in Islamic banks, considering that it likely increases Islamic banks' PD. The study contributes to the empirical research concerning the nexus between ESG commitment and banks' default by extending the measurement of the probability of default and delving deep into investigating its relation to Islamic banks
Profit-and-Loss Sharing Financing, Operating Expenses, and the Intermediation Costs of Islamic Rural Banks in Indonesia
Full text linkThis paper examines the effect of profit-and-loss sharing financing (PLS financing) and operating expenses on the intermediation costs of Islamic rural banks in Indonesia. Using a panel dataset of 147 Islamic rural banks over the period 2011-2021 and dynamic panel regressions, it shows that, in general, PLS financing exerts no significant influence on the Islamic rural banks’ intermediation costs, as measured by the net margin. Meanwhile, the operating expenses are significantly and positively affecting the banks’ net margin, the result that is robust to different regression specifications. Accordingly, the initiatives to promote PLS financing will, at least, not necessarily have a detrimental effect on the net margin. Operating expenses matter more, underscoring the need for serious efforts to improve the effectiveness of Islamic local banks’ cost management
Busy Commissioners and Firm Performance: Do Shariah-Compliant Firms Matter?
Full text linkThe empirical literature on a one-tier board system has recently focused on busy directors, defined as directors holding multiple similar positions in more than one firm simultaneously. In the same spirit, this paper investigates the impact of busy commissioners (instead of busy directors) on firms' performance for the case of Indonesia, a country adopting a two-tier board system. We find that busy commissioners do not impact accounting performance but are negatively associated with market performance. The markets tend to react negatively to the presence of busy commissioners, while actually the firms are also not advantaged financially by their presence. Interestingly, we also find that Shariah-compliant firms tend to have better accounting performance but not with market performance. Our analysis further reveals that the negative impact of busy commissioners on market performance diminishes in non-Shariah-compliant firms. Perhaps, the different characteristics of Shariah-compliant and non-Shariah-compliant companies, wherein Shariah-compliant firms tend to restrict leverage and cash level, account for the results. These findings are robust across various regressions. This research calls on policymakers to enforce the regulation regarding commissioners to reduce its detrimental impact on performance. The regulators should also collaborate with relevant agencies to educate and promote the existence of Shariah-compliant firms in Indonesia.
Acknowledgment
The authors would like to thank Universitas Sebelas-Maret, Indonesia, for the partial funding for this study
Exchange Rates and Stock Market Dynamics: Islamic versus Conventional Financial Systems
Full text linkThis study investigates the changes and persistence in dynamic connectedness between stock market performance and exchange rate fluctuations, comparing conventional and Islamic financial systems. With an eye on a global financial landscape characterized by the integration of capital markets and the adoption of floating exchange rate regimes, it examines the effects of exchange rate variations on the dynamics of the stock market in nine different countries - the United Kingdom, Australia, Japan, Singapore, Canada, China, India, Korea, and South Africa. The study employs daily data spanning from November 2015 to July 2023 and uses a comprehensive analysis of three-step methodology, including nonparametric causality-in-quantiles tests, asymmetric slope Conditional Autoregressive Value-at-Risk (CAViaR), and Time-Varying Parameter Vector Autoregressive (TVP-VAR) Connectedness measure. Our results underline the asymmetric impact of exchange rate fluctuations on stock markets and highlights the distinctive characteristics of Islamic financial markets. Comparing Islamic and conventional stock markets in the context of exchange rate fluctuations, this study not only serves to fill a gap in the existing literature but also emphasizes the significance of currency exchange rate swings for global investors, policymakers, and practitioners trying to understand the intricacies of global financial markets