Corporate Governance, Risk Management, and Financial Performance: The Mediating Role of Risk Governance in Indonesia's Islamic Banks
How to cite (SHIRKAH) :
Islamic banks face increasing pressure to strengthen governance and risk oversight, yet the mediating role of risk governance in financial performance remains underexplored, particularly in Indonesia. This study aims to examine the structural relationships among corporate governance, risk management, risk governance, and the financial performance of Indonesia’s Islamic banks. A quantitative research, drawing on secondary data from annual reports of eight Islamic banks between 2016 and 2023 with 64 observations, was employed. Corporate governance was measured using a composite governance index, risk governance through committee structures, risk management via credit, operational, liquidity, and Sharia-compliance controls, while financial performance was proxied by ROA and ROE. Data were analyzed using path analysis with PLS-SEM. The findings reveal that corporate governance significantly strengthens risk governance but does not directly improve financial performance. Conversely, risk management exerts a significant positive influence on financial performance, though it does not shape risk governance. Risk governance itself neither impacts financial performance nor mediates the relationships between governance, risk management, and performance. These results suggest that risk governance in Indonesian Islamic banks remains compliance-oriented rather than performance-enhancing. The study highlights the need for regulatory reforms and strategic integration of risk governance to support sustainable growth.
Abebe Zelalem, B., Ali Abebe, A., & Wodajo Bezabih, S. (2022). Corporate governance and financial performance in the emerging economy: The case of Ethiopian insurance companies. Cogent Economics & Finance, 10(1), 2117117. https://doi.org/10.1080/23322039.2022.2117117
Alam, M. K., Rahman, M. M., Islam, F. T., Adedeji, B. S., Mannan, M. A., & Sahabuddin, M. (2021). The practices of Shariah governance systems of Islamic banks in Bangladesh. Pacific Accounting Review, 33(4), 505-524. https://doi.org/10.1108/PAR-10-2020-0195
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. http://dx.doi.org/10.1108/AJAR-11-2020-0112
Aldoseri, M., & Worthington, A. C. (2016). Risk management in Islamic banking: An emerging market imperative. In S. Boubaker, B. Buchanan, & D. K. Nguyen (Eds.), Risk Management in Emerging Markets (pp. 229–252). Emerald Group Publishing Limited. https://doi.org/10.1108/978-1-78635-452-520161020
Alhammadi, S., Archer, S., & Asutay, M. (2020). Risk management and corporate governance failures in Islamic banks: a case study. Journal of Islamic Accounting and Business Research, 11(10), 1921–1939. https://doi.org/10.1108/JIABR-03-2020-0064
Alodat, A. Y., Salleh, Z., Hashim, H. A., & Sulong, F. (2022). Corporate governance and firm performance: Empirical evidence from Jordan. Journal of Financial Reporting and Accounting, 20(5), 866-896. http://dx.doi.org/10.1108/JFRA-12-2020-0361
Alsalami, T., Soo-Wah, L., Nor, S. M., & Alsheikh, A. H. (2023). The impact of enterprise risk management on financial performance: Evidence from the GCC Islamic banks. Asian Economic and Financial Review, 13(11), 818–831. https://doi.org/10.55493/5002.v13i11.4867
Aslam, E., & Haron, R. (2020). Does corporate governance affect the performance of Islamic banks? New insight into Islamic countries. Corporate Governance: The International Journal of Business in Society, 20(6), 1073–1090. https://doi.org/10.1108/CG-11-2019-0350
Benichou, M. (2024). Audit committee and board of directors: A synergy for effective corporate governance. International Journal of Professional Business Review: Int. J. Prof. Bus. Rev., 9(12), 4. https://doi.org/10.26668/businessreview/2024.v9i12.5238
Boachie, C. (2023). Corporate governance and financial performance of banks in Ghana: the moderating role of ownership structure. International Journal of Emerging Markets, 18(3), 607-632. https://doi.org/10.1108/IJOEM-09-2020-1146
Cheah, C. K., Wong, K. Y., Tan, K. L., Ong, H. S., Kong, Y. M., & Erusan, D. (2023). Islamic Bank Audit Committee and Risk-Taking Behavior. A Conceptual Framework (Vol. 1). Atlantis Press SARL. https://doi.org/10.2991/978-2-494069-99-2_12
Elamer, A. A., Ntim, C. G., & Abdou, H. A. (2017). Islamic governance, national governance, and bank risk management and disclosure in MENA Countries. Business & Society, 59(5), 914–955. https://doi.org/10.1177/0007650317746108
Erin, O., Bamigboye, O., & Arumona, J. (2020). Risk governance and financial performance: An empirical analysis. Business: Theory and Practice, 21(2), 758–768. https://doi.org/10.3846/btp.2020.10850
Farooq, M., Noor, A., & Ali, S. (2022). Corporate governance and firm performance: empirical evidence from Pakistan. Corporate Governance: The International Journal of Business in Society, 22(1), 42-66. https://doi.org/10.1108/CG-07-2020-0286
Galli, B. J. (2021). Economic Decision-Making and Risk Management: A Relation From the Banking Perspective. International Journal of System Dynamics Applications (IJSDA), 10(4), 1-25. https://doi.org/10.4018/IJSDA.20211001.oa2
Guluma, T. F. (2021). The impact of corporate governance measures on firm performance: the influences of managerial overconfidence. Future Business Journal, 7(1), 50. https://doi.org/10.1186/s43093-021-00093-6
Hair, J. F., Risher, J. J., Sarstedt, M., & Ringle, C. M. (2019). When to use and how to report the results of PLS-SEM. European business review, 31(1), 2-24. https://doi.org/10.1108/EBR-11-2018-0203
Halim, E. H., Mustika, G., Sari, R. N., Anugerah, R., & Mohd-Sanusi, Z. (2017). Corporate governance practices and financial performance: The mediating effect of risk management committee at manufacturing firms. Journal of International Studies, 10(4), 272–289. https://doi.org/10.14254/2071-8330.2017/10-4/21
Hendrastuti, R., & Harahap, R. F. (2023). Agency theory: Review of the theory and current research. Jurnal Akuntansi Aktual, 10(1), 85. https://doi.org/10.17977/um004v10i12023p085
Ismaeel, F. N., & Soliman, M. M. (2022). The effect of corporate governance on the financial performance of SME listed companies in Egypt. Corporate Ownership and Control, 20(1), 95–102. https://doi.org/10.22495/cocv20i1art9
Jallali, S., & Zoghlami, F. (2022). Does risk governance mediate the impact of governance and risk management on banks’ performance? Evidence from a selected sample of Islamic banks. Journal of Financial Regulation and Compliance, 30(4), 439–464. https://doi.org/10.1108/JFRC-04-2021-0037
Jan, A., Marimuthu, M., Hassan, R., & Mehreen. (2019). Sustainable business practices and firm’s financial performance in islamic banking: Under the moderating role of islamic corporate governance. Sustainability (Switzerland), 11(23), 1–25. https://doi.org/10.3390/su11236606
Karkošková, S. (2023). Data governance model to enhance data quality in financial institutions. Information Systems Management, 40(1), 90-110. http://dx.doi.org/10.1080/10580530.2022.2042628
Khalil, A., & Boulila Taktak, N. (2020). The impact of the Shariah Board’s characteristics on the financial soundness of Islamic banks. Journal of Islamic Accounting and Business Research, 11(10), 1807–1825. https://doi.org/10.1108/JIABR-08-2018-0127
Kyere, M., & Ausloos, M. (2021). Corporate governance and firms financial performance in the United Kingdom. International Journal of Finance and Economics, 26(2), 1871–1885. https://doi.org/10.1002/ijfe.1883
Minaryanti, A. A., Fitrijanti, T., Sukmadilaga, C., & Mihajat, M. I. S. (2024). The role of Sharia governance in minimizing credit risk in Islamic banking: a systematic literature review. Journal of Islamic Accounting and Business Research, ahead-of-p(ahead-of-print). https://doi.org/10.1108/JIABR-11-2022-0301
Mishchenko, S., Naumenkova, S., Mishchenko, V., & Dorofeiev, D. (2021). Innovation risk management in financial institutions. Investment Management and Financial Innovations, 18(1), 191-203. http://dx.doi.org/10.21511/imfi.18(1).2021.16
Molla, M. I., Islam, M. S., & Rahaman, M. K. B. (2023). Corporate governance structure and bank performance: Evidence from an emerging economy. Journal of Economic and Administrative Sciences, 39(3), 730-746. http://dx.doi.org/10.1108/JEAS-05-2021-0083
Nomran, N. M., Haron, R., & Hassan, R. (2018). Shari’ah supervisory board characteristics effects on Islamic banks’ performance: Evidence from Malaysia. International Journal of Bank Marketing, 36(2), 290–304. https://doi.org/10.1108/IJBM-12-2016-0197
Rahmawati, A. I. E., Prawestri, A. D., Rosadi, S., & Wardani, M. K. (2024). Enhancing Islamic bank performance: The role of Sharia supervisory board attributes and intellectual capital. JAS (Jurnal Akuntansi Syariah), 8(2), 203–226. https://doi.org/10.46367/jas.v8i2.1943
Rehman, H., Ramzan, M., Haq, M. Z. U., Hwang, J., & Kim, K. B. (2021). Risk management in corporate governance framework. Sustainability, 13(9), 5015. https://doi.org/10.3390/su13095015
Saad, M. M., Ismail, R. F., Zam, Z. M., & Hasnan, S. (2024). Investigating the impact of effective risk management on the performance of Malaysian publicly listed companies. Edelweiss Applied Science and Technology, 8(1), 13–23. https://doi.org/10.55214/25768484.v8i1.412
Safiullah, M., & Shamsuddin, A. (2018). Risk in Islamic banking and corporate governance. Pacific-Basin Finance Journal, 47, 129–149. https://doi.org/https://doi.org/10.1016/j.pacfin.2017.12.008
Saeudy, M., Atkins, J., & Barone, E. A. (2022). Interpreting banks’ sustainability initiatives as reputational risk management and mechanisms for coping, re-embedding and rebuilding societal trust. Qualitative Research in Financial Markets, 14(1), 169-188. https://doi.org/10.1108/QRFM-02-2021-0024
Sibarani, L., & Lusmeida, H. (2021). Impact of good corporate governance towards corporate value with enterprise risk management as moderating variable (Empirical study of financial companies listed in IDX for the period 2017-2019). Ultima Management: Jurnal Ilmu Manajemen, 13(1), 74–98. https://doi.org/10.31937/manajemen.v13i1.1957
Sobanova, J., & Kudinska, M. (2024). Managing operational risk in banks during times of instability. Serbian Journal of Management, 19(1), 167-185. https://doi.org/10.5937/sjm19-43757
Stulz, R. M. (2022). Risk taking and risk management by banks. Journal of Applied Corporate Finance, 34(1), 95-105. https://doi.org/10.1111/jacf.12491
Syadali, M. R. A., Segaf, S., & Parmujianto, P. (2023). Risk management strategy for the problem of borrowing money for Islamic commercial banks. Enrichment: Journal of Management, 13(2), 1227-1236. https://doi.org/10.35335/enrichment.v13i2.1392
Tamara, T. T., Haninun, H., & Aminah, A. (2024). The effect of good corporate governance implementation on financial performance. Cashflow Current Advanced Research on Sharia Finance and Economic Worldwide, 3(2), 365–376. https://doi.org/10.55047/cashflow.v3i2.1084
Tazilah, M. D. A. K., Muhammad, M., Awee, A., & Keang, A. A. L. A. (2021). Corporate-governance-characteristics-and-financial-performance-evidence-from-islamic-banks-in-malaysiaManagement-and-Accounting-Review. Management and Accounting Review Journal, 20(1), 39–60.
Thapa, R. B., Kumar, A., Gupta, S. K., & Bhandari, R. C. (2025). The role of audit committees in strengthening governance and risk management in banks: Evidence from Nepal. International Journal of Environmental Sciences, 11(7s), 960-971. http://dx.doi.org/10.64252/5zm2j538
Uddin, M. N., Hosen, M., Azad, M. A. K., Gunerhan, H., Hoque, N., Uddin, M., & Mamun, A. (2024). Guidelines for developing the shariah compliant products and shari'ah governance for sustainable banks in Bangladesh. Business Strategy & Development, 7(1), e309. http://dx.doi.org/10.1002/bsd2.309
Umar, U. H., Abduh, M., & Besar, M. H. A. (2023). Shari’a supervisory board and Islamic banks’ insolvency risk. Journal of Islamic Monetary Economics and Finance, 9(3), 419–442. https://doi.org/10.21098/jimf.v9i3.1635
Wasim, M. H., & Zafar, M. B. (2024). Shariah governance and Islamic banks: a systematic literature review. Journal of Islamic Accounting and Business Research, ahead-of-p(ahead-of-print). https://doi.org/10.1108/JIABR-11-2023-0386
Xi, W. (2024). Regulatory changes and compliance challenges. In Strategic Financial Management: A Managerial Approach (pp. 119-134). Emerald Publishing Limited. https://doi.org/10.1108/978-1-83608-106-720241008
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
Copyright
Copyright aims to protect the specific way the article has been written to describe an experiment and the results. Shirkah: Journal of Economics and Business is committed to its authors to protect and defend their work and their reputation and takes allegations of infringement, plagiarism, ethical disputes, and fraud very seriously. Automotive Experiences is published under the terms of the Attribution-NonCommercial 4.0 International (CC BY-NC 4.0). Authors retain copyright and grant the journal right of first publication (online and print) with the work simultaneously. We use the restrictive license (non-commercial) as follows:
BY (attribution): Users are allowed to share, distribute and redistribute the published article in any medium or format, with an identification of the authors and its initial publication in this journal. Authors are encouraged to post and distribute their articles immediately after publication (e.g., institutional or public repositories, personal websites). Authors are allowed to enter into additional contractual arrangements for the non-exclusive distribution of the published and an acknowledgment of its initial publication in this journal.
NC (non-commercial): Users are not allowed to use the article commercially without the permission of the authors. Authors agree explicitly that the published article is indexed worldwide in databases, repositories and indexation services, even if these services operate on a commercial basis. Authors grant Shirkah: Journal of Economics and Business explicit the right to include the published articles in databases, repositories and indexation services. License
License to Publish
The non-commercial use of the article will be governed by the Attribution-NonCommercial 4.0 International (CC BY-NC 4.0). The author hereby grants Shirkah: Journal of Economics and Business an exclusive publishing and distribution license in the manuscript include tables, illustrations or other material submitted for publication as part of the manuscript in print, electronic and all other media (whether now known or later developed), in any form, in all languages, throughout the world, for the full term of copyright, and the right to license others to do the same, effective when the article is accepted for publication. This license includes the right to enforce the rights granted hereunder against third parties.
Author's Warranties
The author warrants that the article is original, written by stated author/s, has not been published before, contains no unlawful statements, does not infringe the rights of others, is subject to copyright that is vested exclusively in the author and free of any third party rights, and that any necessary written permissions to quote from other sources have been obtained by the author(s).
User Rights
Under the Creative Commons Attribution-Non Commercial 4.0 International (CC BY-NC 4.0) license, the author(s) and users are free to share (copy and redistribute the material in any medium or format) and adapt (remix, transform, and build upon the material). Users must give appropriate credit, provide a link to the license, and indicate if changes were made.
Rights of Authors
Authors retain the following rights:
- Copyright, and other proprietary rights relating to the article, such as patent rights,
- The right to use the substance of the article in future own works, including lectures and books,
- The right to reproduce the article for own purposes, provided the copies are not offered for sale, and
- The right to self-archive the article.
Co-Authorship
If the article was prepared jointly with other authors, the signatory of this form warrants that he/she has been authorized by all co-authors to sign this agreement on their behalf, and agrees to inform his/her co-authors of the terms of this agreement.
Royalties
This agreement entitles the author to no royalties or other fees. To such extent as legally permissible, the author waives his or her right to collect royalties relative to the article in respect of any use of the article by Shirkah: Journal of Economics and Business or its sublicensee.
Miscellaneous
Shirkah: Journal of Economics and Business will publish the article (or have it published) in the Journal if the article's editorial process is successfully completed and Shirkah: Journal of Economics and Business or its sublicensee has become obligated to have the article published. Shirkah: Journal of Economics and Business may conform the article to a style of punctuation, spelling, capitalization, and usage that it deems appropriate.