Journal of Islamic Monetary Economics and Finance, Vol. 11, No. 1 (2025), pp. 91 - 118
p-ISSN: 2460-6146, e-ISSN: 2460-6618

A LITERATURE REVIEW OF UPDATED ISLAMIC
CORPORATE GOVERNANCE ELEMENTS:
IMPLICATIONS FOR INDONESIA
Irna Puji Lestari1,2, Mamduh Mahmadah Hanafi1,3 and Leo Indra Wardhana1,4
1
Islamic Economy and Halal Industry, Universitas Gadjah Mada, Indonesia,
Ministry of Religious Affairs of Indonesia, Indonesia, irnapujilestari@mail.ugm.ac.id
3
Department of Management, Universitas Gadjah Mada, Indonesia, mamduhmh@ugm.ac.id
4
Department of Economics and Business Vocational School, Universitas Gadjah Mada, Indonesia,
leo.wardhana@ugm.ac.id
2

ABSTRACT
This study identifies elements of Islamic Corporate Governance (ICG) that contribute
to the performance of shariah-compliant firms. A systematic literature review is carried
out on 173 relevant articles from the Scopus database, spanning from 2004 to 2024. It
identifies five key elements of ICG: (1) Shariah board governance, (2) management and
board governance, (3) audit and risk governance, (4) sustainable governance, and (5)
Muslim management and board governance. These key elements encompass various
sub-elements that have diverse impacts on firm performance across financial, social,
and environmental dimensions. The findings offer specific implications for Indonesia,
emphasizing the integration of sustainability practices into corporate governance
mechanisms and considering distinct approaches to ICG mechanisms for dual-sector
performance between Islamic Financial Institutions (IFIs) and non-IFIs.
Keywords: Islam, Islamic corporate governance, Shariah governance, Firm performance,
Literature review.
JEL classification: G30; L25; M14; Q56.

Article history:
Received
: August 6, 2024
Revised		
: September 27, 2024
Accepted
: February 28, 2025
Available online : March 24, 2025
https://doi.org/10.21098/jimf.v11i1.2305

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A Literature Review of Updated Islamic Corporate Governance Elements:
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I. INTRODUCTION
Islamic Corporate Governance (ICG) consists of mechanisms that improve
organizational management by defining stakeholder relationships, powers, rights,
and obligations based on Islamic values (Mubtadi & Adinugraha, 2022). The ICG
has been in place over centuries to address the shifting goals of companies. For
instance, within Islamic banks, the ICG requires the establishment of a Shariah
Supervisory Board (SSB) to ensure alignment with Sharia principles (Khan, Khan,
Uddin, Khan, & Marwat, 2024; Mollah & Zaman, 2015). In the broader context of
Islamic business, from a theoretical point of view, various studies emphasize the
importance of both profit motives and a commitment to social well-being (Chen &
Yu, 2023). However, in practical implementation, economic objectives such as the
maximization of shareholders’ wealth (Hasan, 2009) persist as a primary driving
factor for assessing firm performance. It was only around the 2010s, as noted by
Hassan & Harahap (2010), that many Muslim countries began contemplating
amendments to mandate companies to consider social and environmental
objectives. This shift is further substantiated by the emergence of governance
standards regarding the implementation and disclosure of Corporate Social
Responsibility (CSR) for Islamic Financial Institutions (IFIs) by the Accounting and
Auditing Organization for Islamic Financial Institutions (AAOIFI, 2010). In recent
years, companies are also increasingly urged to advocate sustainability agenda
for the benefits to both shareholders and stakeholders (Jan et al., 2019). This shift
towards sustainability aligns with the growing recognition that responsible and
environmentally conscious business practices not only contribute to long-term
financial gains but also foster positive relationships with diverse stakeholders,
including customers, employees, and the broader community (Baklouti, 2022;
Kateb, Nafti, & Zeddini, 2023). In this context, corporate governance has an
increasingly crucial role in balancing the interests of all stakeholders (Pranata &
Laela, 2020). Several researchers further posit that corporate governance within the
Islamic framework expands its role as a conduit for organizational accountability to
God (Pahlevi, 2022; Slahudin, 2008), thus expecting companies to uphold the wellbeing of all of God’s creations (Mahboob et al., 2022), including the environment.
Accordingly, research inquiries have evolved to encapsulate the pivotal
contribution of ICG to broader firm performance, extending beyond financial
metrics to encompass social and environmental dimensions. The multifarious
manifestations of ICG mechanisms, influenced by intricate factors such as
corporate culture, applicable regulations, and business environments (Jan,
Lai, & Tahir, 2021), engender a spectrum of research outcomes. For instance, a
study by Boudawara et al. (2023), leveraging cross-national datasets, delineates
disparate impacts emanating from governance oversight by Shariah boards visà-vis regular boards within Islamic banking. Their findings suggest that Shariah
board governance negatively impacts social and environmental performance,
while regular board governance yields positive impacts. Furthermore, Grassa,
El-Halaby, and Khlif (2023) through meta-analysis find contradictory results
regarding the impacts of various governance attributes of Shariah Supervisory
Board (SSB) such as size, qualifications, reputation, interlock, and expertise on
Islamic banking performance, especially during economic recovery periods.
Several empirical studies also employ different theoretical approaches to explain

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the positive or negative influences of ICG on firm performance. For instance,
the agency theory predicts a negative relationship between board size and firm
performance (Al-Malkawi & Javaid, 2018; Aslam & Haron, 2020; Nomran &
Haron, 2019), while resource dependence theory asserts a positive relationship
(Ghosh, 2017; Prasojo, Yadiati, Fitrijanti, & Sueb, 2022). Moreover, certain elements
of ICG pose challenges in measurement, spanning various socio-psychological
and management disciplines, such as expertise, diversity, and networks (Kok,
Giorgioni, & Farquhar, 2022), necessitating ongoing evaluation of their efficacy
and quality to obtain meaningful finding. Therefore, it is important to review and
evaluate previous empirical studies to generalize and validate extensive research
conducted in this field. This review is particularly motivated by the need to explore
the diversity of ICG elements contributing to firm performance in today’s dynamic
business landscape, which is increasingly focused on sustainability issues.
Based on the foregoing discussion, we state our research questions as follows:
RQ1. What are the elements of ICG that drive the firm’s financial, social, and
environmental performance?
RQ2. What are the implications of these ICG elements in Muslim-majority
countries, especially in Indonesia?
Apart from addressing the uncertainties and discrepancies found in previous
research on ICG, this study also contributes to the expansion of the current
classification of ICG elements, which is predominantly limited to regular and
Sharia dimensions (Buallay, 2019; Jan et al., 2021). Furthermore, this study offers the
potential for reconfiguring ICG elements to develop alternative mechanisms that
could enhance firm performance in Muslim-majority countries. This is particularly
important for Indonesia, the largest Muslim-majority country in the world (World
Population Review, 2023), where unique socio-economic and cultural factors
necessitate a tailored approach to ICG. By focusing on Indonesia, this study can
contribute to addressing specific regional challenges and opportunities, thereby
advancing the understanding and application of ICG in a context with substantial
global influence.
The rest of the paper is structured as follows. Section II provides a literature
review of the concept and definitiona of Islamic corporate governace and past
studies. Next, section III sets out the methodology and section IV presents the
results. Finally, section V concludes.
II. LITERATURE REVIEW
2.1. Definition of Islamic Corporate Governance
Linguistically, the term governance in Islam can be associated with the Arabic
word “hakam”, or “al-hawakamah” or “hawkama” which refers to the concept of
government, regulation, and decision-making (Hasan & Al Timimi, 2015; Lewis,
2005). Broadly, the term ‘governance’ can be interpreted as the act of governing,
which, in turn, delegates the authority of decision-making to those chosen by
individuals to serve the overall objectives of the community (Ahmed, 2011).
Numerous studies indicate that corporate governance in Islam has historical roots

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A Literature Review of Updated Islamic Corporate Governance Elements:
Implications for Indonesia

in the time of the Prophet Muhammad SAW which can be found in the practices
of Shura and Hisba. Shura, or consultative council, guided business transactions,
trade, and fair distribution (Lewis, 2005; Rahman, 1998), while Hisba, led by
market supervisors called Muhtasib, protected public interests based on Islamic
moral values (Bhatti & Bhatti, 2010; Rahman, 1998). Notably, Prophet Muhammad
himself served as the first Muhtasib (Jan et al., 2021; Rahman, 1998).
In the context of Islamic business, the term corporate governance surfaces in
the publication by Rahman (1998), defining it as a governance framework that
integrates regulatory aspects grounded in Islamic law and ensures adherence to
Islamic moral teachings within the corporation. Furthermore, Iqbal & Mirakhor
(2004) supplement the definition of corporate governance within the Islamic
system, encompassing principles governing individual rights, society, state,
laws regulating property ownership, and contractual frameworks. Lewis (2005)
expounds on ICG within a more extensive commission, incorporating diverse
responsibilities towards suppliers, customers, competitors, and employees, as
well as addressing the spiritual and worldly needs of the Islamic community.
Many researchers also concur that the concept of ICG shares similarities with
conventional governance regarding stakeholder interests, yet places emphasis
on values and principles derived from the Quran and Hadith (Hasan, 2009;
Hashim, Mahadi, & Amran, 2015; Sadek, Rahim, & Abas, 2018; Yuspin & Fauzie,
2023). Consequently, ICG transcends mere resource management, embodying a
profound act of worship (Tsafe & Rahman, 2013).
2.2. Previous Study
Several studies have reviewed and mapped various governance elements
contributing to corporate performance. Given the Shariah-oriented nature of
ICG, its elements naturally differ from conventional ones which only focus on
the boards and management (Chaudhary, 2021). Ghayad (2008) employs a
descriptive study to define core elements in corporate governance within Islamic
banks, encompassing investor relations and relationships with stakeholders such
as staff, employees, customers, clients, suppliers, and public interest groups like
trade unions. Jan et al. (2021) posit that ICG encompasses two primary elements:
Shariah governance and corporate governance. They further utilize Shariah board
attributes as indicators for the first element and ownership structure as indicators
for the second, both considered to contribute to the sustainability performance
of Islamic banks across economic, social, and environmental dimensions. In line
with this, Minaryanti & Mihajat (2024), through a systematic literature review,
emphasize the importance of Shariah board governance elements in enhancing the
financial performance of Islamic banks. Through a comparative analysis between
Malaysia and Morocco, Franzoni & Ait Allali (2024) using a qualitative case study
identify several crucial ICG elements such as board representative, Shariah board,
nominating committee, remuneration committee, risk management committee,
audit committee, and governance committee. Unfortunately, previous studies
have presented ICG elements in a fragmented manner and have not provided
updated references regarding ICG elements in the SDG era.

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III. METHODOLOGY
This study employs a systematic literature review since it is a dependable,
reproducible, and scientific method for building a knowledge base (Lim, Kumar,
& Ali, 2022; Tranfield, Denyer, & Smart, 2003). The data were collected from the
Scopus database, known for its accessibility, reliability, and breadth of sources
(Sdrolia & Zarotiadis, 2019). To obtain coverage of ICG elements in business
performance across different historical periods, article selection was made
without time restriction, encompassing the most recent research available at the
time the database was accessed in January 2024. Various combinations of keyword
strings were used to search for relevant information in article titles, abstracts, and
keywords (see Table 1).
Table 1.
Combination of Keyword Search
No. of
Articles

Keywords
“Islamic corporate* Governance*” OR “sharia* Governance*” OR “Shari’a* Governance*”
OR “Corporate* Governance*”AND Bank* OR “Islamic Institution*” OR IFI* OR “Islamic
Financ* Institution*” OR “Islamic Organization*” AND Performance* OR Sustain*
“Islamic corporate* Governance*” OR “sharia* Governance*” OR “Shari’a* Governance*”
OR “Corporate* Governance*” AND bank* OR “Islamic Institution*” OR IFI* OR “Islamic
Financ* Institution*” OR “Islamic Organization*”
“Islamic corporate* Governance*” OR “sharia* Governance*” OR “Shari’a* Governance*”
AND Performance* OR Sustain*
Total collection

904
32
59
995

Following the collection of articles, a screening assessment was conducted
utilizing the Covidence application protocol. Among the 995 collected articles
imported into the application, specific eligibility criteria were applied during the
screening of titles, and abstracts, and subsequently during the full-text review
(refer to Table 2). This process resulted in 173 final articles (see Figure 1).
Table 2.
Eligibility Criteria
Title and abstract
• English articles
• Peer-reviewed article
• Purpose(s) and finding(s)
discussed about ICG and firm
performance
• Using Islamic unit analysis
(Islamic banks, shariah-compliant
firms, Islamic organizations, etc)
• Quantitative study

Full-text
•
•
•
•

ICG as an explanatory variable
Firm performance as a response variable
Examination of ICG at the organizational/ institutional level
Provide specific elements/ indicators/ proxies (articles
that present ICG as an index, can be included only if the
significance of each element used in the index is individually
explained).
• Clear presentation of a significance test to ascertain the
impact.

Identification

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A Literature Review of Updated Islamic Corporate Governance Elements:
Implications for Indonesia

Articles from databases
(n = 995)

Duplicates article removed (n = 175)

Screening

Full text assessed for eligibility
(n = 321)

Included

Articles for Title and Abstract
Screening (n = 820)

Articles included in analysis
(n = 173)

Articles excluded (n = 499)

Articles excluded (n = 148)

Figure 1.
Screening Protocol

These final articles were then analyzed through an in-depth content reading
to identify the elements of ICG that influence firm performance across financial,
social, and environmental aspects. Concerning financial performance, the
selected articles encompass those employing accounting-based and market-based
measurements (such as ROA, ROE, ROI, and Tobins-Q). Particularly for studies
focusing on Islamic banking, stability indicators (e.g., z-score) are also taken into
account. Furthermore, social performance evaluation includes CSR scores, zakat
contributions, and other pertinent aspects. Meanwhile environmental performance
assessment centers around environmental scores and sustainability indicators. It
is noteworthy that several articles explore multiple aspects of firm performance
concurrently; thus, we capture all significant findings for each performance
aspect through tabulation. However, non-significant effects are not included.
In cases where elements are measured using dummy variables, consistency in

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Journal of Islamic Monetary Economics and Finance, Vol. 11, Number 1, 2025

measurement standards is ensured. For instance, if SSB Gender is measured with
female=1 and Male=0, and the result in articles was a positive significance on firm
performance. Then, another study employed the reverse measurement (Male=1
and female=0) also generated positive significance, the effect was then adjusted
to negative. Once all elements are identified, they are categorized into primary
elements, each comprising sub-elements representing indicators or proxies of ICG.
IV. RESULTS AND ANALYSIS
4.1. Article Distribution
The preliminary result outlines the article distribution (see Table 3), spanning from
2004 to 2024. The majority of these articles focus on Islamic banking (68.8%) as
the object of study, and primarily employs the Southeast Asian region (31.8%) as
research scope.
Table 3.
Article Distribution
20042011
Organization Setting
IFIs
Islamic Bank
Islamic Charity Organization
Sharia Mutual Fund
Shariah-compliant Firm
Takaful
Total
Continent Setting
Asia
Central Asia
Gulf Cooperation Council (GCC)
GCC and non-GCC
GCC and Southeast Asia
Middle East
Middle East and North Africa
North Africa
Northeast Africa
OIC Countries
South Asia
Southeast Asia
Various Countries
Total

Publish Year
201220172016
2020

20212024

Total

%

0
2
0
0
3
0
5

2
21
0
0
3
0
26

3
47
0
1
16
0
67

2
49
1
0
21
2
75

7
119
1
1
43
2
173

4.0%
68.8%
0.6%
0.6%
24.9%
1.2%
100%

0
0
1
0
0
1
0
0
0
0
0
3
0

1
1
3
1
2
3
1
3
1
0
4
5
1

3
0
9
0
2
10
1
0
0
0
3
26
13

1
0
2
0
2
15
4
0
0
3
7
21
20

5
1
15
1
6
29
6
3
1
3
14
55
34

2.9%
0.6%
8.7%
0.6%
3.5%
16.8%
3.5%
1.7%
0.6%
1.7%
8.1%
31.8%
19.7%

5

26

67

75

173

100%

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A Literature Review of Updated Islamic Corporate Governance Elements:
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Table 4 displays the journal sources of the final articles along with their Scimago
Journal Ranks in 2023. The top three journals are the Journal of Islamic Accounting
and Business Research (Q3) with 14 articles, Corporate Governance (Bingley) (Q1)
with 7 articles, and Banks and Bank Systems (Q2) with 7 articles. The remaining
articles are published in both ranked and unranked journals related to the themes/
fields of corporate governance, banking, accounting, and sustainability.
Table 4.
Journal Sources
Rank

Q1

Q2

Q3

Q4

Journal (frequency)
Corporate Governance (7); Pacific-Basin Finance Journal (5); Corporate Governance :
An international Review (4); Journal of Business Ethics (3); Sustainability (Switzerland)
(3); Asia-Pacific Journal of Business Administration (2); Emerging Markets Review (2);
Journal of Applied Accounting Research (2); Journal of International Financial Markets,
Institutions and Money (2); Research in International Business and Finance (2); Business
Strategy and The Environment (2); Finance Research Letters (1); FWU Journal of Social
Sciences (1); Global Finance Journal (1); Heliyon (1); International Journal of Bank
Marketing (1); International Journal of Accounting and Information Management (1);
International Journal of Productivity and Performance Management (1); Journal of King
Saud University – Science (1); Journal of Accounting and Organizational Change (1);
Journal of Banking and Finance (1); Journal of Management and Governance (1); Journal
of Open Innovation: Technology, Market, and Complexity (1); Managerial Auditing
Journal (1); SAGE Open (1); Social Responsibility Journal (1); Journal of Accounting in
Emerging Economies (1).
Total: 50
Banks and Bank Systems (7); International Journal of Islamic and Middle Eastern
Finance and Management (5); Cogent Business and Management (4); Journal of Islamic
Marketing (3); Australasian Accounting, Business and Finance Journal (2); Journal
of Management and Governance (2); International Journal of Emerging Markets (2);
International Journal of Finance and Economics (2); Journal of Financial Reporting and
Accounting (2); International Journal of Energy Economics and Policy (1); Journal of
Management and Organization (1); Review of Quantitative Finance and Accounting (1).
Total: 32
Journal of Islamic Accounting and Business Research (14); Journal of Risk and Financial
Management (4); International Journal of Business and Society (3); International
Journal of Business Governance and Ethics (3); International Journal of Financial
Studies (3); Managerial Finance (3); Asian Economic and Financial Review (2); Journal
of Islamic Monetary Economics and Finance (1); Al-Shajarah (1); Asian Academy of
Management Journal of Accounting and Finance (1); Asian Review of Accounting (1);
Bulletin of Monetary Economics and Banking (1); Discrete Dynamics in Nature and
Society (1); Global Journal Al-Thaqafah (1); Humanities and Social Sciences Letters (1);
Indian Journal of Finance (1); International Journal of Business Excellence (1); ISRA
International Journal of Islamic Finance (1); Journal of Eastern European and Central
Asian Research (1); Journal of Financial Regulation and Compliance (1); Journal of
International Women’s Studies (1); Review of Financial Economics (1).
Total: 47
Quality - Access to Success (3); Management and Accounting Review (2); Journal of
King Abdulaziz University: Islamic Economics (2); International Journal of Monetary
Economics and Finance (1); Multinational Finance Journal (1).
Total: 9

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Table 4.
Journal Sources (Continued)
Rank

Unranked

Journal (frequency)
Corporate Ownership and Control (6); Journal of Asian Finance, Economics and
Business (5); Asian Social Science (3); Middle East Journal of Scientific Research (2);
Accounting (2); Management & Sustainability: An Arab Review (2); Accounting
Analysis Journal (1); Advanced Journal of Technical and Vocational Education
(1); Advanced Science Letters (1); Entrepreneurship and Sustainability Issues (1);
Humanomics (1); International Journal of Accounting and Finance in Asia Pasific (1);
International Journal of Economics and Financial Issues (1); International Journal of
Professional Business Review (1); International Journal of Recent Technology and
Engineering (1); International Journal of Supply Chain Management (1); International
Letters of Social and Humanistic Sciences (1); Journal of Business and Retail
Management Research (1); Procedia Economics and Finance (1); Studies of Applied
Economics (1); The Journal of Developing Areas (1).
Total: 35

4.2. The Recent Elements of ICG
In-depth content analysis identifies five primary elements of ICG that exert
influences on firm performance. We carefully classified each sub-element to
the primary element based on the similarity of their characteristics, and also
considering the classification used from several previous studies.
4.2.1. Shariah Board Governance
Shariah board governance is classified based on various attributes and
characteristics of the SSB following several prior research (Buallay, 2019; Safiullah,
Hassan, & Kabir, 2022; Safiullah & Shamsuddin, 2018). Shariah board governance
refers to the management or oversight carried out by the Shariah board (Ghayad,
2008), which is specifically established in IFIs. The Shariah board governance
consists of several sub-elements as presented in Table 5.
Table 5.
The Element of Shariah Board Governance
Sub-Element
SSB size
SSB interlock
SSB Meeting
SSB Reputation
SSB Independence
SSB Expertise
SSB Education
SSB Tenure
SSB Female

Financial Performance Social Performance
Majority
Sign

%
Articles

+
+
+/+
+/+
+
+
+

65.1%
61.5%
50%
57.1%
50%
57.1%
72.7%
75%
80%

Environment Performance

Majority
%
Majority Sign
Sign
Articles
+
+/+
+
+
N/A
N/A

77.8
50%
100%
100%
100%
66.7%
66.7%
N/A
N/A

+
N/A
N/A
N/A
N/A
N/A
N/A

% Articles
66.7%
N/A
100%
N/A
100%
N/A
N/A
N/A
N/A

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Table 5.
The Element of Shariah Board Governance (Continued)
Sub-Element
SSB Foreign
SSB Age

Financial Performance Social Performance
Majority
Sign

%
Articles

+/-

100%
50%

Environment Performance

Majority
%
Majority Sign
Sign
Articles
N/A
N/A

N/A
N/A

N/A
N/A

% Articles
N/A
N/A

Note: “+” means a positive effect. “-” means a negative effect. “+/-” means both positive and negative effects are
prevalent in the literature. “N/A” means non-significant effect in the entire literature or no literature that examines
this sub-element.

The first sub-element, and the one most commonly examined in the literature,
is the SSB size. SSB size demonstrates a positive relation to financial performance
(Ajili & Bouri, 2018; Farag, Mallin, & Ow-Yong, 2018; Mollah & Zaman, 2015;
Quttainah, Cocco, & Al-Zufairi, 2017), social performance (Nomran & Haron, 2019;
Nurkhin, Rohman, Rofiq, & Mukhibad, 2018; Yusoff, Azhari, & Darus, 2018), and
environmental performance (Hashim et al., 2015; Muhmad, Ariff, Majid, & Abidin,
2021). Adhering to resource dependence theory, a sizable SSB effectively reduces
a company’s reliance on external resources, minimizes uncertainty, and provides
vital knowledge and resources for company success (Baklouti, 2022; Hashim et
al., 2015; Quttainah et al., 2017). This also applies to the SSB cross-membership in
other Islamic institutions, known as SSB interlock, which offers social networking
experiences and broader resource access for companies (Grassa, 2016; Mansoor
et al., 2020). Furthermore, an optimal number of SSB meetings is required to
fortify firm performance, as these regular gatherings contribute to more effective
monitoring of company transactions (Baklouti, 2022). However, an excessive
number of meetings may incur high preparation costs and procedural burdens
on SSBs (Alsartawi, 2019) that might reduce some aspects of firm performance.
Additionally, the SSB’s reputation, exemplified by its membership in a reputable
Islamic organization, plays a pivotal role in enhancing firm performance, especially
in financial and social aspects. Reputable SSB members typically possess extensive
knowledge about the industry (Nomran et al., 2018) thereby enhancing the firm’s
credibility in the eyes of stakeholders, which is in line with stakeholder theory
(Wijayanti & Setiawan, 2022). Meanwhile, the presence of SSB independence
provides an additional layer of monitoring and accountability that significantly
contributes to the performance of Islamic banks (Almutairi & Quttainah, 2017).
However, the independent members in the SSB are associated with heightened
agency costs and additional control burdens in preparing the data necessary to be
able to make decisions, potentially exerting a negative impact on firm performance
(Alsartawi, 2019).
Table 5 also illustrates that SSB expertise, education, and tenure play crucial
roles in enhancing firm performance, particularly in the financial and social
domains. SSBs with pertinent expertise in economics, finance, and accounting
(Aljughaiman, Salama, & Verousis, 2024; Mukhibad, Setiawan, & Rochmatullah,
2022) exhibit good capabilities in integrating modern banking issues and Sharia
principles (Safiullah et al., 2022; Safiullah & Shamsuddin, 2018), thereby optimizing
their decision-making processes (Grassa & Matoussi, 2014). Meanwhile, the

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educational background of SSB members can enhance their knowledge capacity,
facilitating knowledge transfer among the board and contributing to their overall
performance (Kok et al., 2022). Similarly, SSB tenure can assist members in
accumulating knowledge over time, enhancing specific company information and
skills that lead to improved firm performance (Kok et al., 2022).
In contrast, SSB demographic characteristics, including gender, age, and
nationality, yield varied influences on company performance. Female SSB
members are known for their superior communication skills (Baklouti, 2022),
and disciplined approach, which contributes to effective supervision within the
company (Mansoor et al., 2020). In terms of age, younger SSB members often bring
contemporary insights on various issues, while their older counterparts typically
contribute extensive experience in innovation (Khan et al., 2024). Furthermore,
foreign SSB members can enhance managerial expertise, foster ethical collaboration,
and stimulate creativity and innovation (Khan et al., 2024).
4.2.2. Management and Board Governance
Management and board governance is classified based on several sub-elements
that involve the various attributes and characteristics of the Board of Directors
(BOD), the Board of Commissioner (BOC), and the top management (represented
by the CEO). While Safiullah, Hassan, & Kabir (2022) classify such elements under
the term “regular board governance,” we use the term “management and board
governance” to clarify the presence of management functions. The management
and board governance consists of several sub-elements as presented in Table 6.
The first and the most assessed sub-element in the literature is BOD size, which
has a positive impact on financial, social, and environmental performance. Still
aligned with the resources dependence theory, a large board signifies extensive
internal capabilities beneficial for strategy formulation and shareholder rights
protection (Haider, Khan, & Iqbal, 2015; Hashim et al., 2015). Firm performance
can also be enhanced through effective close monitoring by determining the
ideal board composition consisting of outsider or non-executive directors and
independent directors (Bawaneh, 2020; Habtoor, 2020; Haris, Yao, Tariq, Javaid,
& Ain, 2019). Independent BOCs are also needed to control the firm’s social
performance since they represent the interests of all other stakeholders (Mukhibad
& Setiawan, 2020), without material interest in the company (Darwanto & Chariri,
2019; Hooy & Ali, 2017). Conversely, as predicted by the agency theory, BOC
size has a predominantly negative influence on a firm’s financial performance,
as it creates additional bonding costs in two-tier system firms that have a large
BOD (Sulistiani & Tjahjadi, 2022). On the other hand, CEO duality, as indicated
by the separating roles of the chairman of the board and CEO, has varying effects
on firm performance. While CEO duality provides benefits in reducing conflicts
(Al-Matari, Homaid, & Alaaraj, 2016; Haron, 2018), it also yields additional
controlling power that leads to more private benefits (Ben Zeineb & Mensi, 2018).
BOD members with a reputation, often associated with a specific public image
related to politics or government (Haris et al., 2019; Khalil & Ben Slimene, 2021),
may be beneficial for firm performance since they can get wider access to capital
(Almutairi & Quttainah, 2017), but they are also vulnerable in complying with

A Literature Review of Updated Islamic Corporate Governance Elements:
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102

regulations on employment equality and environmental policies (Jahid, Rashid,
Hossain, Haryono, & Jatmiko, 2020).
Meanwhile, the appointment of founders and family members as CEOs or
Directors could bring dynamic issues to company performance. They may have
loyalty and insider knowledge that is useful for the company (Mamatzakis et al.,
2023), but too many family members on the board can reduce internal information
disclosure (Abu-Tapanjeh, 2009) thereby hindering the firm’s maximum
performance. Furthermore, BOD and CEO compensation which is measured by
their remuneration, salary, bonus, and other benefits (Al-Faryan, 2021; Chou &
Buchdadi, 2018; Saad, 2009) is mostly found to motivate the CEO and BOD to
maintain the desired performance for the company (Chou & Buchdadi, 2018; Haris
et al., 2019).
Table 6.
The Element of Management and Board Governance
Sub-Element
BOD Size
BOC Size
BOD Composition
BOD Independence
BOC Independence
CEO Duality
BOD Meeting
BOC Meeting
BOD Interlock
CEO Interlocks
BOD Reputation
BOD Founder
CEO Founder
BOD Compensation
CEO Compensation
BOD Education
BOD Tenure
CEO Tenure
BOD Experience
CEO Experience
BOD Female
CEO Female
BOD Age
CEO Age
BOD Foreign
CEO Foreign
BOD Ethnic

Financial Performance Social Performance Environment Performance
Majority
Majority
%
Majority
% Articles
% Articles
Sign
Sign
Articles
Sign
+
+
+
+
+
+
+
+
+
+/+
+
+
+
+
+
+
+
+
+/+
+

63%
100%
56.3%
63%
66.7%
68.4%
65.2%
100%
66.7%
100%
50%
100%
100%
83%
100%
92.3%
66.7%
75%
66.7%
100%
66.7%
57.1%
75%
50%
57.1%
100%
100%

+
N/A
N/A
+
+/+
+
N/A
N/A
N/A
+
+
N/A
N/A
N/A
+/+
N/A
+
N/A
N/A

80%
N/A
N/A
60%
50%
100%
100%
100%
N/A
N/A
100%
N/A
100%
100%
N/A
100%
100%
100%
N/A
N/A
50%
100%
N/A
100%
100%
N/A
N/A

+
N/A
N/A
+/N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A

66.7%
N/A
N/A
50%
N/A
N/A
66.7%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
100%
N/A
N/A
N/A
N/A
N/A
N/A

Note: “+” means a positive effect. “-” means a negative effect. “+/-” means both positive and negative effects are
prevalent in the literature. “N/A” means no significant effect found in the entire literature or no literature that
examines this sub-element.

Journal of Islamic Monetary Economics and Finance, Vol. 11, Number 1, 2025

103

Some technical attributes of CEOs and BODs such as their education and
experience also positively contribute to firm performance. Directors who have
good educational qualifications, expertise, and all mandatory skills related to the
business environment can understand the company’s performance better (Bansal,
Samontaray, Aljalahma, & Khadim, 2023) and contribute to strategic success
(Hamdan, Khamis, Anasweh, Al-Hashimi, & Razzaque, 2019). They also can make
good decisions based on their experience and knowledge about the companies’
relevant issues (Kallamu & Saat, 2015). However, an excessively long tenure of
directors and executives in the company can increase agency costs, thereby
reducing fund performance (Sofi & Yahya, 2020).
Additionally, several demographic characteristics of BODs and CEOs, such
as gender, age, nationality, and ethnicity predict various influences on firm
performance. The presence of women on the BODs or as CEOs is considered to
provide better monitoring and consultation services for the company’s financial
performance (Hassan & Marimuthu, 2018b), and they tend to be more motivated
by the firm’s social goals (Melis & Nawaz, 2024). Unfortunately, they are less likely
to engage in environmental commitment (Muhmad et al., 2021). In terms of age,
older CEOs and directors usually bring more experience and knowledge that
contributes to enhancing firm performance (Grassa & Matoussi, 2014), however,
they may also adhere to traditional methods that pose risks to stakeholder
trust (Melis & Nawaz, 2024). Meanwhile, foreign participation in CEO or BOD
promotes innovation and positive changes in the company (Hassan & Marimuthu,
2018b), thereby promoting good governance (Jahid et al., 2020). Similarly, ethnic
diversity within the BODs also contributes to firm performance through a variety
of expressions and ideas, providing added value to the company (Hassan &
Marimuthu, 2018a).
4.2.3. Audit and Risk Governance
Audit and risk governance is classified based on several sub-elements that involve
various attributes of the audit committee (AC) and risk management committee
(RMC). Almost all sub-elements of audit and risk governance show a positive
influence on overall firm performance (see Table 7). Unfortunately, not much
evidence is found in the article regarding its impact on environmental performance.
The top sub-element that is widely assessed in the literature is AC size which
posits a positive influence on firm performance especially in financial and social
aspects. The significant number of audit committees, as explained by agency theory,
can minimize agency problems by enhancing the quality of financial reporting,
reducing information asymmetry, and mitigating fraud risks (Al-Matari, Hazaea,
Senan, Mgammal, & Mohamed, 2022; Al-Matari et al., 2016; Athar, Chughtai,
& Rashid, 2023; Fauzi, Basyith, & Foo, 2017). A larger AC can also enhance the
monitoring capabilities of the board (Harun, Hussainey, Mohd Kharuddin, &
Farooque, 2020). Similarly, the independence among AC members also promotes
the effective implementation of financial reporting standards (Alzeban, 2020) and
enhances corporate sustainability disclosures (Ur Rehman, Farid, & Naeem, 2023).
Furthermore, frequent AC meetings could lead to better financial performance (AlMatari et al., 2016; Almoneef & Samontaray, 2019) by enhancing the committee’s

A Literature Review of Updated Islamic Corporate Governance Elements:
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104

understanding of the company’s situation and enabling effective intervention to
reduce financial fraud (Al-Matari et al., 2016; Kateb et al., 2023). AC meetings also
serve to disclose more social information, resulting in achieving corporate social
performance (Umar, Firmansyah, Danlami, & Al-Faryan, 2024).
Table 7.
The Element of Audit and Risk Governance
Sub-Element
AC Size
AC Independence
AC Meeting
Remuneration Committee
RMC Size
RMC Meeting

Financial
Performance
Majority
%
Sign
Articles
+
+
+
+
+/+

58.8%
63.6%
57.1%
66.7%
50%
100%

Social Performance
Majority
Sign

%
Articles

+/+
+
+
N/A
N/A

50%
100%
100%
100%
N/A
N/A

Environment
Performance
Majority
%
Sign
Articles
N/A
+
N/A
N/A
N/A
N/A

N/A
100%
N/A
N/A
N/A
N/A

Note: “+” means a positive effect. “-” means a negative effect. “+/-” means both positive and negative effects are
prevalent in the literature. “N/A” means no significant effect found in the entire literature or no literature that
examines this sub-element.

Moreover, the remuneration committee is included in the audit and risk
governance element due to its relevance to risk disclosure and the establishment
of formal and transparent remuneration policies and procedures (Arsad, Said,
Yusoff, & Ahmad, 2021). The resource dependence theory supports the idea that
the size of the remuneration committee brings higher experience and skills to
design compensation packages aligning management and board actions with the
company’s interests (Arsad et al., 2021). Furthermore, agency theory explains that
the size of RMC signifies increased resources to address agency problems (Aslam
& Haron, 2020). Likewise, the frequency of RMC meetings can oversee overall
corporate risk-taking behavior and reduce agency conflicts (Aljughaiman et al.,
2024; Hassan et al., 2019; Jallali & Zoghlami, 2022).
4.2.4. Sustainable Governance
Sustainable governance is classified based on several sub-elements that involve
various attributes with functions related to corporate sustainability initiatives. The
classification is adopted by recent studies that incorporate sustainability practices
in ICG (Abdullah et al., 2024; Jan et al., 2019, 2021). Sustainable governance
encompasses several sub-elements that are still infrequently addressed in the
literature, as seen in Table 8.

105

Journal of Islamic Monetary Economics and Finance, Vol. 11, Number 1, 2025

Table 8.
The Element of Sustainable Governance
Sub-Element
Sustainability Committee
Chief Sustainability Officer
CEO Philanthropic
Sustainability Commitment

Financial
Performance
Majority
%
Sign
Articles
N/A
N/A
+
+

N/A
N/A
100%
100%

Social Performance
Majority
Sign

%
Articles

+
N/A
+
N/A

100%
N/A
100%
N/A

Environment
Performance
Majority
%
Sign
Articles
N/A
N/A
N/A
+

N/A
N/A
N/A
100%

Note: “+” means a positive effect. “-” means a negative effect. “+/-” means both positive and negative effects are
prevalent in the literature. “N/A” means no significant effect found in the entire literature or no literature that
examines this sub-element.

The first sub-element, the sustainability committee, also known as the ESG
or environmental committee, is formed to formulate, implement, and evaluate
sustainability policies and initiatives systematically and progressively (Fitriasari,
2023). This sub-element has been shown to influence social performance (Muntaha
& Haryono, 2021), but there is a lack of evidence regarding its impact on financial
and environmental performance in selected literature. Using legitimacy theory,
Abdullah et al. (2024) highlight that companies establish sustainability committees
simply to create a positive public image and legitimacy to meet stakeholder
demands without a strong commitment to addressing environmental issues on
a larger scale. Additionally, there is no evidence in the reviewed articles that the
presence of a Chief Sustainability Officer contributes to company performance.
This may be because their current roles tend to be used only as symbolic tools to
fulfill corporate obligations and meet stakeholder demands, rather than ethical
responsibilities (Fitriasari, 2023).
In addition, CEO philanthropy, which is explained through upperechelon theory as a personal characteristic that provides positive perceptions
to stakeholders, can contribute to social goals in the organization (Melis &
Nawaz, 2024), such as personally covering the costs of performing the Hajj for
underprivileged communities or distributing basic food items during the month
of Ramadan (Melis & Nawaz, 2024). Further, the sustainability commitment shows
a positive relation to the financial and environmental performance of the firm.
The sustainability commitment refers to the disclosure of sustainability or ESG or
ethical commitment in the firm’s vision and mission (Hashim et al., 2015), which
can also be measured with an ethical commitment index by management (Aliani,
Alsalih, & Hamza, 2022). Based on the assumptions of the resource-based view
theory, the design of a sustainability vision or mission helps companies adopt
better strategies by considering the competencies and demands of the external
environment in which they have to operate (Hashim et al., 2015). In the context of
ICG, ethical commitment can support the CEO’s religious involvement and desire
to comply with Sharia requirements (Aliani et al., 2022)

A Literature Review of Updated Islamic Corporate Governance Elements:
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106

4.2.5. Muslim Management and Board Governance
Muslim management and board governance is classified based on several subelements that involve various attributes in management, the board, and other
committees. This classification is established because some studies specifically
use these elements as representations of ICG in Shariah-compliant firms (Haron
et al., 2022). Meanwhile, in IFIs, it is almost certain that all governance elements
are Muslim, hence no research has been found in this case that examines Muslim
attributes in the governance of IFIs. Therefore, this classification is an important
finding proposed as an element of governance in Shariah-compliant non-IFI
firms (i.e. companies listed in the Shariah stock index but not included in the IFI
sector). In addition, the religious characteristics in ICG may not be fully captured
in traditional economic behavioral assumptions but also the requirements of
religious governance in maximizing shareholder utility (Kok et al., 2022). Subelements of Muslim management and board governance are shown in Table 9.
The first sub-element is Muslim BOD, measured by the majority of Muslim
members on the BOD. Through upper-echelon theory, Muslim BODs are
considered to prioritize ethical values over high remuneration incentives as
catalysts for optimal company performance (Haron, 2018; Hassan & Marimuthu,
2017, 2018b, 2018a). Stakeholder theory also elucidates that Muslim BODs conduct
their business activities and practices morally and ethically as it can influence
stakeholders’ perceptions of the firm (Haron, 2018). Additionally, upper-echelon
theory explains that Muslim CEOs, Muslim chairmen, and Muslim owners
reflect their values and cognitive biases, which can affect their strategic choices
and behaviors in both financial performance and corporate social responsibility
(Alazzani, Wan-Hussin, & Jones, 2019; Ooi & Hooy, 2022; Surya & Rahajeng, 2023).
On one hand, the implementation of religious values among these Muslim leaders
may lead them to behave conservatively and avoid business competition (Hooy &
Ali, 2017), which may negatively impact company performance.
Table 9.
The Element of Muslim Management and Board Governance
Sub-Element
Muslim BOD
Muslim CEO
Muslim Chairman
Muslim Owner
Muslim Independent
BOD
Muslim Membership
(Hanafi, Hanbali,
Maliki, and Shafi’i)

Financial Performance

Social Performance

Environment
Performance
Majority
%
Sign
Articles

Majority
Sign

%
Articles

Majority
Sign

% Articles

+
+
-

66.7%
66.7%
100%
100%

+
+
+
N/A

100%
100%
100%
N/A

N/A

100%
100%
100%
N/A

N/A

N/A

N/A

N/A

-

100%

+

100%

N/A

N/A

N/A

N/A

Note: “+” means a positive effect. “-” means a negative effect. “+/-” means both positive and negative effects are
prevalent in the literature. “N/A” means no significant effect found in the entire literature or no literature that
examines this sub-element.

Journal of Islamic Monetary Economics and Finance, Vol. 11, Number 1, 2025

107

As regard to environmental performance, the sub-elements of Muslim BOD,
Muslim CEO, Muslim Chairman, and Muslim Independent BOD have a negative
influence (Haron et al., 2022; So, Haron, Gui, Princes, & Sari, 2021). This is due
to the tendency that the presence of Muslim corporate leaders on board and
management may hinder sustainability disclosure due to on-field behavior not
aligning with Islamic ethics (So et al., 2021). On the other hand, the diversity of
board and management membership in Hanafi, Hanbali, Maliki, and Syafi’i has a
positive influence on financial performance (Hassan & Marimuthu, 2018b).
4.3. Implications: Indonesian Case
The findings of this research have primary implications for the integration of key
ICG elements into corporate business practices, especially in Muslim-majority
countries, such as Indonesia. Companies situated in Muslim-majority countries
may consider transitioning to ICG mechanisms and implementing updated
governance elements to support their business performance by aligning business
practices with Islamic principles.
Specifically, drawing from 14 articles examining ICG within Indonesia, several
implications emerge to support the country’s business climate, especially as it serves
as a global hub for Islamic finance in Southeast Asia. First, shifting the focus of
Shariah-compliant companies in Indonesia entails not only financial performance
but also social and environmental performance. This can be achieved through
initiatives such as enhancing sustainability practices and social responsibility
programs. For Islamic banking bound by stringent Shariah principles, efforts may
be emphasized through the role of the SSB, for instance, by increasing zakat funds to
promote social initiatives and corporate social responsibility activities (Hudayati,
Muhamad, & Marfuah, 2023; Nurkhin et al., 2018), increasing support for education
aid (Mukhibad et al., 2022; Pranata & Laela, 2020), and the distribution of interestfree financing (qardh) for social welfare (Mukhibad & Setiawan, 2020). Effendi et
al. (2023) also recommend increasing investment in Information Technology to
bolster the sustainability of Islamic banks in Indonesia. Second, strengthening
internal mechanisms as an effort to fulfil good corporate governance focuses on
promoting Islamic business ethics and sustainable practices, such as appointing
Muslim CEOs and BOD (So et al., 2021; Surya & Rahajeng, 2023), appointing
independent boards and commissioners (Darwanto & Chariri, 2019; Mas’ud et al.,
2023; Sulistiani & Tjahjadi, 2022), forming ethics committees, and promoting gender
diversity (So et al., 2021). Specifically, Shariah-compliant firms should integrate
their internal corporate governance mechanisms for Shariah screening assessment
(Imamah, Lin, Suhadak, Handayani, & Hung, 2019). For Islamic banking, this task
is entrusted to the SSB, under the regulations of the Bank of Indonesia (Basiruddin
& Ahmed, 2020; Savitri et al., 2020). However, for non-IFIs without the presence of
an SSB, the responsibility for overall corporate governance falls solely on the BOD
and CEO (Hudayati et al., 2023). This raises concerns about whether corporate
governance aligns with Shariah values. In this regard, Muslim management and
board governance can be proposed as an alternative mechanism. Practically,
this entails appointing a Muslim corporate leader or assessing specific religious
qualities when appointing CEOs or BODs as in line with the recommendation by

A Literature Review of Updated Islamic Corporate Governance Elements:
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108

Surya & Rahajeng (2023). Muslim board and management governance can also
serve as a Shura council alongside the National Shariah Board which functions
as external mechanisms of ICG in Indonesia. Building upon this argument, we
recommend the alternative ICG mechanism in the dual sector between IFIs and
non-IFI firms in Muslim-majority countries, particularly focusing on Indonesia, as
depicted in Figure 2.

Internal Mechanism
Shariah-compliant Firms in IFIs
Sector

Shariah-compliant Firms in NonIFIs Sector

Shariah Board
Governance

Management and
Board Governance

Muslim
Management &
Board Governance

Management and
Board Governance

Audit and Risk
Governance

Sustainable
Governance

Audit and Risk
Governance

Sustainable
Governance

External Mechanism

Government
(inc. Central Bank)

Muslim Market
Control

National Sharia
Board

Other stakeholders
(employee, suppliers,
distributor, etc)

Figure 2.
ICG Mechanism in Dual Sector Performance

This alternative ICG Mechanism recommends that policymakers, such as
the Bank of Indonesia, the Financial Services Authority, and the National Sharia
Council, implement regulations with specific requirements for companies
seeking inclusion in the Shariah stock index. These regulations would advocate
for companies, not mandated to appoint an SSB, to establish Muslim board
and management governance along with supporting guidelines. This includes
enhancing Sharia financial literacy among board members and management,
providing Sharia operational training for Muslim CEOs and BODs, developing
sustainability and Islamic ethical business indices, and promoting Islamic work
ethics. Hence, it signals to investors that Indonesia is committed to upholding
Islamic principles in its business practices, potentially attracting more investments

Journal of Islamic Monetary Economics and Finance, Vol. 11, Number 1, 2025

109

and partnerships and increasing Indonesia’s reputation as a global leader in the
Islamic finance ecosystem.
V. CONCLUSION
This study identifies five primary elements of ICG, each comprising various subelements that can serve as strong predictors of company performance, not only in
financial aspects but also in social and environmental aspects.
This study validates that ICG mechanisms are strongly aligned with the goals
of Shariah (Maqashid Shariah), which include preserving wealth, safeguarding
the community (ummah), and protecting the environment. These principles
of Maqashid Shariah resonate with the framework of the triple bottom line,
encapsulated by the tagline “people, planet, and profit,” which emphasizes that
businesses should not only pursue economic gains but also contribute positively to
society and the environment. In the context of ICG, this alignment with the triple
bottom line reinforces the idea that Islamic values inherently support a holistic
approach to corporate governance, where financial success is balanced with social
responsibility and environmental stewardship.
This study also clarifies that some identified elements of ICG may not differ
significantly from those used in conventional corporate governance. However, the
key distinction lies in the integration of Islamic values within each element of the
ICG structure. These values may be abstract and challenging to evaluate without
the representation of appropriate governance elements. Therefore, the practical
implications of this study recommend a dual-sector ICG mechanism approach. In
IFIs, this is achieved through the governance of the Shariah board, which ensures
adherence to Islamic principles. In non-IFIs, the presence of a Muslim board
and management serves as an alternative means of embodying and measuring
these values, particularly in maintaining the Islamic reputation for investors and
stakeholders. This alignment underscores the critical role that Islamic values
play in guiding corporate governance and achieving broader ethical and societal
objectives.
Lastly, this study unveils some limitations. First, the scope of this study is
confined to Scopus databases, potentially limiting the breadth of the literature
reviewed. Future investigations could broaden their exploration by including more
expansive databases such as the Web of Science. Additionally, since this study relies
on existing literature, the evolving nature of ICG may introduce new elements
in the future that may not have been discussed in this study. One such element
to consider in future research is religiosity. In this study, the element of Muslim
management and board is measured by religious affiliation rather than religiosity.
Although religiosity has been noted in some studies (e.g., Surya & Rahajeng,
2023), it is challenging to measure religiosity, particularly in research relying on
secondary data common in financial studies. Consequently, many researchers use
religion as a proxy, as it is easier to identify and measure objectively. Religion, as a
tool for social changes, encourages individuals to align with specific group norms
(Nakpodia et al., 2020). Some studies suggest that religion can influence corporate
strategic decisions (Volonté, 2015; Díez-Esteban et al., 2019). In the context of ICG,
the Muslim board and management embody Islamic values that guide corporate

110

A Literature Review of Updated Islamic Corporate Governance Elements:
Implications for Indonesia

governance towards achieving falah (eternal success and happiness), aligning
business objectives with broader social and ethical goals. This finding highlights
the need for future research to explore more nuanced measurements of religiosity,
which could deepen our understanding of how Islamic values are integrated into
corporate governance and their impact on firm performance.
ACKNOWLEDGEMENT
The paper is supported by sponsorship from the Indonesia Endowment Fund for
Education (LPDP), whose sponsorship has played a crucial role in facilitating the
research process. The authors deeply appreciate this support and are grateful for
the opportunities it has provided. The authors also gratefully acknowledge the
valuable comments provided by the journal’s editors and reviewers.
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