The Moderating Effect of Sharia Compliance on The Relationship Between Islamic Corporate Governance and Fraud in Islamic Banks Falikul Isbah (a*)- Rita Yuliana (b)- Nurul Herawati (c)
a) Accounting Department, Faculty of Economics and Business, Universitas Trunojoyo Madura
*falikulisbahsma1[at]gmail.com
b) Accounting Department, Faculty of Economics and Business, Universitas Trunojoyo Madura
c) Accounting Department, Faculty of Economics and Business, Universitas Trunojoyo Madura
Abstract
Purpose: The objective of this study is to test and obtain empirical evidence regarding the impact of Islamic Corporate Governance (ICG) on fraud, both directly and indirectly, through the moderating variable of Sharia Compliance.
Methods: This study upholds rigorous standards by employing a quantitative methodology and utilizing a panel data regression analysis approach with a random effect model. The research population comprises Islamic Commercial Banks and Sharia Business Units, with a large sample selected through the method of purposive sampling, resulting in a robust data set of 130 observations over the period 2019-2023.
Results: The findings of this study are significant, indicating that Islamic Corporate Governance exerts a considerable negative influence on fraud. This suggests a potential avenue for reducing fraud in the Islamic banking sector. The study also found that the Islamic income ratio did not affect fraud, the profit-sharing ratio had a negative effect on fraud, and the Islamic investment ratio had a positive effect on fraud. However, the study did not find evidence that Sharia Compliance, as measured by three proxies, moderates the effect of Islamic Corporate Governance on fraud.
Conclusion and suggestion: The implementation of ICG plays a pivotal role in curbing fraud in Islamic banks by integrating Islamic principles such as shiddiq, amanah, tablig, and fatanah. A fair profit-sharing system also helps to prevent unethical practices. However, Sharia compliance is only a sufficient condition in itself with the presence of rigorous supervision. Islamic banks must enhance their internal monitoring procedures and enhance transparency in their reporting. It is anticipated that this will enhance the confidence and growth of the Islamic banking sector in Indonesia.
