Corporate governance disclosure in the annual report: An exploratory study on Indonesian Islamic banks

Abstract

Purpose

The purpose of this paper is to explore disclosure on corporate governance mechanisms in annual reports of Islamic commercial banks in Indonesia.

Design/methodology/approach

Employing a sample comprising seven Islamic commercial banks in Indonesia, the present study constructs the so‐called Corporate Governance Disclosure Index (CGDI) to score the banks' disclosure level. Corporate governance mechanisms addressed in this study include Shariah Supervisory Board, the Board of Commissioners, the Board of Directors, board committees, internal control and external audit, and risk management.

Findings

It is revealed that Bank Muamalat and Bank Syariah Mandiri, the county's two largest and oldest Islamic commercial banks, score higher than their peers. Disclosure of the sample banks on some dimensions, such as board members and risk management, is found to be strong. On the other hand, disclosure on internal control and board committees tends to be weak.

Practical implications

This study shows that the average disclosure level among the sample banks is relatively low. Hence, this result has important implications for the enhancement of corporate governance disclosure of Islamic banks, thereby wider acceptance and enhanced reputation could be gained.

Originality/value

This paper is believed to be among the first to explore the practice of disclosure on corporate governance mechanisms among Islamic commercial banks. Additionally, it focuses on Indonesia, the largest Muslim country that has a different institutional setting from that in other Muslim countries.

Citation

Darmadi, S. (2013), "Corporate governance disclosure in the annual report: An exploratory study on Indonesian Islamic banks", Humanomics, Vol. 29 No. 1, pp. 4-23. https://doi.org/10.1108/08288661311299295