Higher Ethical Objective (Maqasid al-Shari'ah) Augmented Framework for Islamic Banks: Assessing Ethical Performance and Exploring Its Determinants

This study utilises higher objectives postulated in Islamic moral economy or themaqasid al-Shari'ahtheoretical framework's novel approach in evaluating the ethical, social, environmental and financial performance of Islamic banks.Maqasid al-Shari'ahis interpreted as achieving social good as a consequence in addition to well-being and, hence, it goes beyond traditional (voluntary) social responsibility. This study also explores the major determinants that affectmaqasidperformance as expressed through disclosure analysis. By expanding the traditionalmaqasid al-Shari'ah,, we develop a comprehensive evaluation framework in the form of amaqasidindex, which is subjected to a rigorous disclosure analysis. Furthermore, in identifying the main determinants of themaqasiddisclosure performance, panel data analysis is used by including several key variables alongside political and socio-economic environment, ownership structures, and corporate andShari'ahgovernance-related factors. The sample includes 33 full-fledged Islamic banks from 12 countries for the period of 2008-2016. The findings show that although during the nine-year period the disclosure ofmaqasidperformance of the sampled Islamic banks has improved, this is still short of 'best practices'. Through panel data analysis, this study finds that the Muslim population indicator, CEO duality,Shari'ahgovernance, and leverage variables positively impact the disclosure ofmaqasidperformance. However, the effect of GDP, financial development and human development index of the country, its political and civil rights, institutional ownership, and a higher share of independent directors have an overall negative impact on themaqasidperformance. The findings reported in this study identify complex and multi-faceted relations between external market realities, corporate andShari'ahgovernance mechanisms, andmaqasidperformance.