Internal governance and the sustainability development practice in Islamic financial institutions

Abstract

This study examines the association between internal corporate governance (board size, outside directors, Shariah board size, and training of Shariah board members) and the sustainability practices of Islamic financial institutions (IFIs). The sample includes 59 IFIs listed in Africa, Europe, Asia, the Middle East, and North America over the period 2017–2021. We examine the relationship between internal corporate governance (board size, outside directors, Shariah board size, and training of Shariah board members) and sustainability practices using the ordinary least squares (OLS) method. Overall, our findings suggest that larger boards of directors and Shariah boards achieve greater sustainability. We also find a positive relationship between the training of Shariah board members and sustainability practices. Additionally, outside directors have an insignificant impact on sustainability practices. This study provides useful insights for managers and policymakers to better understand which internal governance mechanisms, especially board size, Shariah board size, and the training of Shariah board members, can best encourage a company to improve sustainable development practices.