Shariah-Compliant Governance and Corporate Financial Sustainability: A Critical Review of Theory and Evidence
DOI:
https://doi.org/10.32890/ijib2026.11.2.5Keywords:
Shariah-Compliant Governance, Shariah Supervisory Board, Corporate Financial Sustainability, Islamic Corporate Governance, Maqasid al-ShariahAbstract
As Islamic finance continues to gain traction worldwide, academic circles differ on whether Shariah-compliant governance (SCG) drives corporate financial sustainability (CFS) or merely adds to business expenses. However, research on this topic remains limited and inconclusive. To bridge this research gap, this study is the first to conduct a systematic literature review and critical narrative synthesis of 59 peer-reviewed articles published between 2020 and 2025 on the impacts of Shariah governance setups, such as Shariah supervisory boards (SSBs), corporate governance mechanisms, and Maqasid al-Shariah principles, on a company's financial performance, resilience, longevity, and value. The results indicate that SCG positively affects CFS, but the effects may vary by composition, context, and research design. The results suggest that the larger the SSB, the more knowledgeable and trustworthy the members; the more independent the members, the greater the performance improvement. Scholars have noted a lack of consensus on the best SSB board composition. This study presents the best and worst practices for corporate boards in Islamic finance organizations. This study identifies valid shortcomings in theorization, namely the absence of robust theoretical models and structures that test multiple mediator and moderator constructs. The research also indicates that most existing SSB-related studies have been conducted in Gulf Cooperation Council (GCC) countries and Southeast Asia; as a result, they may not be valid in other regions of the world. This study is the first comprehensive study to offer a detailed conceptual system. It combines five independent variables, three moderators, three mediators, and four control variables into a single conceptual system that presents testable hypotheses to check the effects of secondary variables and diagrams to interpret the influence of board variables on CFS. The findings will be valuable to policymakers and regulators in determining minimum SSB requirements and constraints on independence; managers and board members in improving the effectiveness of governance disclosures and building intellectual capital; and researchers in establishing, developing, and solidifying the research agenda and pathways.
Downloads
References
Abdul Rahim, M., Shaharuddin, N. ’A. S., & Mohd Suki, N. (2024). Shariah governance disclosure and its effect on Islamic banks’ financial performance: Evidence from Malaysia and GCC countries. Journal of Islamic Accounting and Business Research, 15(4), 619–642. https://doi.org/10.1108/jiabr-08-2021-0235
Achyani, F., Fatchan, I. N., Barokah, Z., & Fatchan, F. H. (2025). Islamic governance and ethical framework of Islamic banks with respect to financial performance: Evidence from QISMUT countries. Banks and Bank Systems, 20(3), 58–74. https://doi.org/10.21511/bbs.20(3).2025.05
Alam, M. K., Rahman, M. M., Runy, M. K., Adedeji, B. S., & Hassan, M. F. (2022). The influences of Shariah governance mechanisms on Islamic banks performance and Shariah compliance quality. Asian Journal of Accounting Research, 7(1), 2–16. https://doi.org/10.1108/ajar-11-2020-0112
Al-Haija, E. A., & Syed, M. (2021). Islamic real estate investment trust: Comparative study between Emirates Islamic REIT UAE and Al Salam Islamic REIT Malaysia. Journal of Islamic Accounting and Business Research, 12(6), 904–918. https://doi.org/10.1108/jiabr-09-2020-
Alnori, F., & Bugshan, A. (2023). Cash holdings and firm performance: Empirical analysis from Shariah-compliant and conventional corporations. International Journal of Islamic and Middle Eastern Finance and Management, 16(3), 498–515. https://doi.org/10.1108/imefm-01-2022-
Aslam, E., Ur Rehman, A., & Iqbal, A. (2024). The mediating role of intellectual capital in corporate governance and financial efficiency of Islamic banks. Corporate Governance: The International Journal of Business in Society, 24(1), 19–40. https://doi.org/10.1108/CG-06-2022-0276
Badshah, Y. A., Hashmi, M. A., & Shah, M. H. (2021). Board oversight and financial performance of Islamic banks in Arab and non-Arab countries. International Journal of Business and Society, 22(3), 1384–1401. https://doi.org/10.33736/ijbs.4310.2021
Bank Negara Malaysia. (2019). Policy document on Shariah governance. https://www.bnm.gov.my/-/policy-document-on-shariah-governance
Ben Abdallah, M., & Bahloul, S. (2023). Further evidence on the effect of financial performance and governance on the Islamic banks’ disclosure. Asian Journal of Accounting Research, 8(2), 110– 121. https://doi.org/10.1108/ajar-09-2021-0156
BenSaid, Y. R. (2025). Shariah governance and takaful financial performance: The case of listed takaful insurances. Journal of Islamic Accounting and Business Research, 16(1), 170–187. https://doi.org/10.1108/JIABR-09-2022-0236
Bugshan, A., Bakry, W., & Li, Y. (2023). Oil price volatility and firm profitability: An empirical analysis of Shariah-compliant and non-Shariah-compliant firms. International Journal of Emerging Markets, 18(5), 1147–1167. https://doi.org/10.1108/ijoem-10-2020-1288
Effendi, J., Qoyum, A., Wardhana, L. I., & Thaker, H. M. T. (2023). IT investment and Islamic banking performance in Indonesia: Do sukuk issuance and Shariah governance matter? Banks and Bank Systems, 18(2), 75–87. https://doi.org/10.21511/bbs.18(2).2023.07
Farabi, A., Putri Kurniadi, A., Dasilva, H., Thoha, M., Karimi, K., Suhendra, A., Abinda Firdaus, I., Setiawan, S., Asrori, A., & Salim, Z. (2025). Islamic banking finance and environmental sustainability: Sector-level analysis from Indonesia. International Journal of Energy Economics and Policy, 15(5), 695–704. https://doi.org/10.32479/ijeep.20331
Farhat, A., & Hili, A. (2025). The impact of Shariah compliance on firm’s performance and risk. Review of Financial Economics, 43(2), 231–257. https://doi.org/10.1002/rfe.1227
Grassa, R., El-Halaby, S., & Khlif, H. (2023). Shariah board characteristics and Islamic banks’ performance: A meta-analysis. International Journal of Islamic and Middle Eastern Finance and Management, 16(6), 1089–1106. https://doi.org/10.1108/imefm-10-2022-0392
Gunawan, R., & Nakajima, K. (2025). Asset pricing in a country embracing religious beliefs and social norms: Evidence from the Indonesian stock market. Borsa Istanbul Review, 25(2), 227–239. https://doi.org/10.1016/j.bir.2024.12.005
Helmi, M. H., Ur Rahman, J., Abdul Rehman Shah, S. M., & Ijaz, S. (2025). The role of corporate governance in driving performance, stability and growth: Islamic vs. conventional banks in Pakistan. International Journal of Islamic Finance and Sustainable Development, 17(4). https://doi.org/10.55188/ijifsd.v17i4.1008
Hidayat, S. E., Sakti, M. R. P., & Al-Balushi, R. A. A. (2021). Risk, efficiency and financial performance in the GCC banking industry: Islamic versus conventional banks. Journal of Islamic Accounting and Business Research, 12(4), 564–592. https://doi.org/10.1108/jiabr-05-2020-0138
Isa, M., & Lee, S.-P. (2020). Does the Shariah committee influence risk-taking and performance of Islamic banks in Malaysia? Journal of Islamic Accounting and Business Research, 11(9), 1739– 1755. https://doi.org/10.1108/jiabr-12-2018-0207
Isa, M., Lee, S. P., Bacha, O. I., & Ahmad, R. (2022). Some thoughts on resetting the roles and functions of Sharīʿah committees of Islamic banks in Malaysia. ISRA International Journal of Islamic Finance, 14(2), 175–189. https://doi.org/10.1108/ijif-05-2021-0096
Jabari, H. N., & Muhamad, R. (2021). Gender diversity and financial performance of Islamic banks. Journal of Financial Reporting and Accounting, 19(3), 412–433. https://doi.org/10.1108/jfra-03-2020-0061
Jan, A. A., Lai, F. W., & Tahir, M. (2021). Developing an Islamic corporate governance framework to examine sustainability performance in Islamic banks and financial institutions. Journal of Cleaner Production, 315, Article 128099. https://doi.org/10.1016/j.jclepro.2021.128099
Kateb, I., Nafti, O., & Zeddini, A. (2025). How to improve the financial performance of Islamic banks in the MENA region? A Shariah governance perspective. International Journal of Emerging Markets, 20(6), 2559–2580. https://doi.org/10.1108/ijoem-03-2023-0434
Kayani, U., Hasan, F., Choudhury, T., & Nawaz, F. (2025). Unveiling WCM and firm performance relationship: Evidence from Shariah-compliant United Kingdom firms. International Journal of Islamic and Middle Eastern Finance and Management, 18(3), 535–556. https://doi.org/10.1108/imefm-04-2024-0168
Khan, I., & Zahid, S. N. (2020). The impact of Shari’ah and corporate governance on Islamic banks performance: Evidence from Asia. International Journal of Islamic and Middle Eastern Finance and Management, 13(3), 483–501. https://doi.org/10.1108/imefm-01-2019-0003
Khattak, M. A., Ali, M., & Burki, A. K. (2020). Sustainability disclosures and financial performance: Shariah-compliant vs non-Shariah-compliant Indonesian firms. Journal of Islamic Monetary Economics and Finance, 6(4), 789–810. https://doi.org/10.21098/jimf.v6i4.1087
Kholidah, H., Fianto, B. A., Herianingrum, S., Ismail, S., & Mohd Hidzir, P. A. (2025). Do Islamic fintech lending promote microenterprises' performance in Indonesia? Evidence of difference-in-difference model. International Journal of Islamic and Middle Eastern Finance and Management, 18(1), 224–246. https://doi.org/10.1108/imefm-08-2023-0310
Kismawadi, E. R. (2025). Improving Islamic bank performance through agency cost and dual board governance. Journal of Islamic Accounting and Business Research, 16(3), 461–483. https://doi.org/10.1108/jiabr-01-2023-0035
Kok, S. K., Giorgioni, G., & Farquhar, S. (2022). The trade-off between knowledge accumulation and independence: The case of the Shariah supervisory board within the Shariah governance and firm performance nexus. Research in International Business and Finance, 59, Article 101549. https://doi.org/10.1016/j.ribaf.2021.101549
Kok, S. K., & Shahgholian, A. (2023). The impact of proximity within elite corporate networks on the Shariah governance-firm performance nexus: Evidence from the global Shariah elite. Emerging Markets Review, 54, Article 100998. https://doi.org/10.1016/j.ememar.2023.100998
Lestari, I. P., Hanafi, M. M., & Wardhana, L. I. (2025). A literature review of updated Islamic corporate governance elements: Implications for Indonesia. Journal of Islamic Monetary Economics and Finance, 11(1), 91–118. https://doi.org/10.21098/jimf.v11i1.2305
Loang, O. K., & Candra, S. (2025). Religion and green: The dual power of ESG and Shariah-compliant stocks in brand values of Malaysia, Indonesia, and Saudi Arabia. Journal of Islamic Monetary Economics and Finance, 11(2), 419–448. https://doi.org/10.21098/jimf.v11i2.2687
Marzuki, A., Jamil, N. N., Wahid, M. A., & Abdullah, W. A. W. (2024). Characteristics of board and Shariah board on risk-taking and performance: Evidence from takaful operators in Malaysia. Jurnal Pengurusan, 71. https://doi.org/10.17576/pengurusan-2024-71-8
Mergaliyev, A., Asutay, M., Avdukic, A., & Karbhari, Y. (2021). Higher ethical objective (Maqasid al-Shari’ah) augmented framework for Islamic banks: Assessing ethical performance and exploring its determinants. Journal of Business Ethics, 170(4), 797–834. https://doi.org/10.1007/s10551-019-04331-4
Mohd Zain, F. A., Abdullah, W. A., & Muhamad, S. F. (2025). Governance mechanisms and Islamic bank performance: Insights from South East Asia and the Gulf Cooperation Council. Management and Accounting Review, 24(1), 57–97. https://ir.uitm.edu.my/id/eprint/113516/1/113516.pdf
Mohd Zain, F. A., Wan Abdullah, W. A., Muhamad Nasir, M. N., & Hassan, M. F. (2025). Development of a comprehensive sustainability performance index for takaful operators: Integrating Maqasid al-Shariah and stakeholder perspectives. International Journal of Islamic and Middle Eastern Finance and Management, 18(3), 628–648. https://doi.org/10.1108/imefm-07-2024-0343
Muneem, A., Ali, A. K., Razif, N. F. M., Zainuddin, F. H., & Daihani, M. A. (2025). The current landscape of Malaysian Islamic crowdfunding and future forward. International Journal of Business and Systems Research, 19(2), 158–176. https://doi.org/10.1504/ijbsr.2025.145490
Muneer, S., Singh, A., Choudhary, M. H., Alshammari, A. S., & Butt, N. A. (2025). Does environmental disclosure and corporate governance ensure the financial sustainability of Islamic banks? Administrative Sciences, 15(2), Article 54. https://doi.org/10.3390/admsci15020054
Mustafa, D. I., Alzebdieh, R. M., Abdullatif, M., & Majali, S. A. (2024). Intellectual capital and firm performance of Jordanian financial institutions. Banks and Bank Systems, 19(3), 9–22. https://doi.org/10.21511/bbs.19(3).2024.02
Neifar, S., Salhi, B., & Jarboui, A. (2020). The moderating role of Shariah supervisory board on the relationship between board effectiveness, operational risk transparency and bank performance. International Journal of Ethics and Systems, 36(3), 325–349. https://doi.org/10.1108/ijoes-09-2019-0155
Pudjiono, Mutamimah, Santoso, B., & Widodo. (2025). Trustworthy financial responsibility towards quality financial performance. Management (Montevideo), 3, Article 290. https://doi.org/10.62486/agma2025290
Saba, I., Ariff, M., & Mohd Rasid, E. S. (2021). Performance of Shari’ah-compliant and non-Shari’ah-compliant listed firms: A case study of Malaysia. International Journal of Islamic and Middle Eastern Finance and Management, 14(1), 128–150. https://doi.org/10.1108/imefm-04-2019-
Sakti, M. R. P., Thaker, H. M. T., & Khaliq, A. (2020). Political connections and firm performance: Evidence from Indonesia. International Journal of Economics & Management, 14(1), 27–42. http://www.ijem.upm.edu.my/vol14no1/3)%20Political%20Connections.pdf
Sueb, M., Syarifah, L., & Putra, R. N. A. (2022). The effect of Shariah board characteristics, risk-taking, and Maqasid Shariah on an Islamic bank’s performance. Banks and Bank Systems, 17(3), 89– 101. https://doi.org/10.21511/bbs.17(3).2022.08
Sulistiani, D., & Tjahjadi, B. (2022). Does financial performance mediate the effect of good corporate governance on Indonesian ṣukūk rating? Journal of King Abdulaziz University: Islamic Economics, 35(2), 97–114. https://doi.org/10.4197/Islec.35-2.6
Tarip, I. (2024). Theorizing Islamic entrepreneurship from an Islamic governance perspective. International Journal of Islamic and Middle Eastern Finance and Management, 17(2), 274– 291. https://doi.org/10.1108/imefm-05-2023-0172
Tashkandi, A. A. (2022). Shariah supervision and corporate governance effects on Islamic banks’ performance: Evidence from the GCC countries. Journal of Business and Socio-Economic Development, 3(3), 253–264. https://doi.org/10.1108/jbsed-02-2022-0024
Virk, N. S., Nawaz, T., & Molyneux, P. (2022). A canary in a coalmine! Religious agency and its impact on the performance of Islamic banks. Journal of International Financial Markets, Institutions and Money, 78, Article 101559. https://doi.org/10.1016/j.intfin.2022.101559
Downloads
Published
Issue
Section
License
Copyright (c) 2026 International Journal of Islamic Business
This work is licensed under a Creative Commons Attribution 4.0 International License.
