Jumat, 22 November 2013


Social Disclosure Analysis:
Study at Islamic Banks in Indonesia and Malaysia

Irman Firmansyah
Lecture at Department of Accounting Siliwangi University Indonesia
Consultant at Smart Consulting Indonesia
email: irman.firmansyah@akuntanindonesia.or.id

Abstract
A company should not only look for profit but how to build social responsibility at the environment so that existence company at society then be admitted by the effort continuance.This research is archival research that aims to analyze social disclosure of sharia banking in Indonesia and Malaysia that measured with Islamic Social Reporting (ISR) with factors that influence it, among others size that measured by total asset, profitability that measured by Return On Asset (ROA), leverage that measured by Debt to Equity Ratio (DER), liquidity that measured by Finance to Deposit Ratio (FDR) and board of comisioner composition that measured by total of board of comisioner. Population in this research is all of sharia public bank in Indonesia and Malaysia. Sample determination by using purposive sampling so got 31 research objects in indonesia and 33 research objects in malaysian that analyzed by panel data regression with Ordinary Least Square (OLS) model.This research result shows that in Indonesia there is no variables are influential towards social disclosure and in Malaysia size, leverage and board of comisioner compositionare influential towards social disclosurewhile profitability and liquidity are not influential towards social disclosure of sharia banking.

Keywords: Islamic Social Reporting, OLS, Sharia Banking

1. Introduction
Currently, companies orientation have started to incorporate other goals, namely how to improve social welfare in surrounding neighbourhood or referred as corporate social responsibility. In general, corporate social responsibility (CSR) can be defined as the responsibilities undertaken by the company to its stakeholders to behave ethically and fulfill all aspects of economic, social and environmental for the sake of sustainable development (Wibisono, 2007). Thus the information disclosed is not only financial information but also other information such as social impacts (externalities) and the environment as a result of the company's activities. Therefore, companies can acquire legitimacy by demonstrating social responsibility (CSR) disclosure through the media, including in the company's annual report (Haniffa & Coke, 2005).
CSR concept is also discussed in Islam. Ahmad (2002) in Fitria and Hartanti (2010) explains that the institution who conduct business based on sharia is essentially referring to the fundamental philosophy of Al-Quran and Sunnah, so this makes the basis for the actors to interact with others and the environment. All forms of social activity should be disclosed in the annual report. So far CSR disclosure measurement in Islamic banking, many are still using the Global Reporting Initiative Index, but the measurement are not accurate since GRI Index is not incorporating the principles of Islam. Unlike GRI, the Islamic Social Reporting (ISR)[1] has already accommodated principles of Islam and is currently emerging and become hot issue in the worl. ISR Index is a measure of social performance practice in Islamic banking which containts a compilation of CSR items standards set by AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions) and then developed further by researchers on CSR items that should be disclosed by an Islamic entity (Othman et al, 2009).
Governments in moslem populous countries such as Malaysia and Indonesia as well as international institutions such as Accounting regulator and Auditing Organization for Islamic Financial Institutions (AAOIFI) is continuously voiced and pursue the development and adoption of CSR reporting format for reporting designed for institutions Islamic finance (Sharani, 2004; Yunus, 2004). Therefore both Indonesia and Malaysia are trying to homogenize CSR reporting format in accordance with the principles of Islam through AAOIFI.
Therefore, given the Islamic banking industry in the world in Indonesia and Malaysia are growing quite rapidly, coupled with the issue of CSR disclosure practices, it is important to conduct research on the social performance disclosure practicesin Islamic banks in Indonesia and Malaysia in terms of perspective on the principles of Islam conformity, it is Islamic Social Index Reporting (ISR).
The disclosure of social performance report (CSR) in the annual report could be a plus for the Islamic banking but such disclosures are still vary from one another because due to many factors that influence as found in the following studies:
Amalia (2005) and Novita & Djakman (2008) found that firm size has a positive effect on the disclosure of social responsibility, and supported by Reverte (2008) and Branco and Rodriguez (2008). While Anggraini (2006) and Rosmasita (2007) who also found that financial leverage, firm size and profitability are not statistically affect the disclosure of corporate social responsibility.
Othman, et al (2009) states that firm size, profitability, and the composition of the board of commissioners have significant influence on social disclosure as measured by ISR in the annual reports of companies in Malaysia. Othman, et al (2009) research is supported by Nurkhin (2009) which states that the composition of the independent board, profitability (ROE) and firm size has a positive effect on the disclosure of corporate social responsibility. Almilia (2007), Badjuri (2011) and Roziani (2009) suggests that the liquidity ratio have a positive relationship to the broad disclosure on corporate social reporting.
Other international studies have also been conducted on the factors affecting corporate social disclosure such as firm size (Mohamed Zain, 1999; Romlah et al., 2003; Hossain, 2008), profitability (Inchausti, 1997; Janggu, 2004; Hossain , 2008), liquidity (Cooke, 1989 in Fitriany, 2001), leverage (Othman et al, 2009) and the composition of the board of commissioners (Chaganti et al., 1985; Hermalin & Weisbach, 1991; Ahmed et al., 2005; Hossain, 2008).
However, empirical studies above do not entirely on Islamic banking but various companies and sizes of disclosure have also varied. Therefore a study on the social responsibility of Islamic banking in Indonesia and Malaysia using Islamic social Index Reporting (ISR) model is needed. Also it is needed to examine the factors that influence the disclosure of social performance including firm size, profitability, leverage, liquidity and the composition of the board of commissioners.

3. Methodology
3.1. Population and Sample
This study population is all sharia banks in Indonesia and Malaysia from 2004 to 2011. According to the data obtained, in 2011 Indonesia has 11 Islamic Banks while Malaysia has 17 banks. Of the overall population, purposive sampling is used to select a sample that will be used in this study.
The criteria for the sample used in this study are:
1.      Islamic Commercial Bank in Indonesia and in Malaysia
2.      Has published Annual Report during the period of 2004-2011 or subject to the availability on each bank's website during the period.

3.2. Data Collecting Method
Data collection method used in this study was the documentation which is the process of collecting data from the annual reports of Islamic banks into the sample provided by each Islamic bank through media website. Specifically for ISR variable measurement, data from document then analyzed using content analysis to assess and give value 1 in every disclosure presented.
Literature study was used in collecting data and information from articles, journals, literature and previous research used to study and understand the literature contains discussion related to research.

3.3. Research Variabel and Operational Definition
This study uses several independent variables either in the form of a ratio scale or the percentage, they are:
1.      Company size, measured by total assets. Nugraheni and Hapsoro (2007) use total assets as a proxy of the size of the company.
2.      Profitability, measured by return on assets (ROA). Return on assets illustrates bank's ability to generate net income through the use of bank assets (Husnan, 1998).
3.      Leverage, measured by debt-to-equity ratio (DER). The ratio is used to provide an overview of the company's capital structure, so it can be seen the level of risk of non-collection of a debt (Prastowo & Juliaty, 2002).
4.      Liquidity, measured by FDR (Financing to Deposit Ratio) because FDR is an indicator of liquidity of Islamic banks as measured by comparing the total financing provided by total funds raised public deposits.
5.      Composition of the Board of Commissioners. In this study the composition of the board of commissioners are used consistent with Sembiring (2005) it is the number of members of the board of commissioners.
In this study the dependent variable used is the Social Performance of Islamic Banking Disclosure proxied by the Islamic Social Reporting (ISR). ISR measurement refers to the study Othman & Thani (2010) which uses content analysis to measure the variety of ISR. Content analysis is one method of measuring ISR is already widely used in previous studies. This approach is basically dichotomy approach that each item ISR in the research instrument was given a value of 1 if disclosed and the value 0 if it is not disclosed. So the amount disclosed will be compared with the total sum and will be indexed.

3.4. Data Analysis Method
Data processing methods used in this study is panel data which is a combination between time series and cross section. Panel data can be processed if it has criteria (t> 1) and (n> 1). However, panel data is unbalanced since not all observation has the same period.
In this study, the analysis technique used is Ordinary Least Square (OLS) regression. This is due to the limitations of observational data so that the assumptions ignore the dimensions of space and time. In testing the hypothesis is performed using the computer program SPSS Ver. 16.0 for Windows.
This is the Ordinary Least Square (OLS) basic model:
Y = a + β1X1it + β2X2it + β3 X3it + β4X4it + β5X5it+ e       
Where : Y = ISR disclosure; a = Constanta; β1 - β5 = Coefficient independent variable; X1 - X5 = independent variable; i = Unit Cross Section; t = Periods; and e = Residual error.



[1] The ISR index has disclosed on matters related to Islamic principles such as zakat, shariah compliance status and the transaction is free from riba element and gharar also social aspects such as sodaqoh, waqof, qordul hasan, until the disclosure od worship in the corporate environment

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