Islamic ethics disclosure as determinant on Islamic banking performance: evidence from MENA countries

Abstract

Purpose – This study aims to explore the relationship between Islamic ethical disclosure and the performance of Islamic banks in the countries located in the Middle East and North Africa (MENA) region. The primary focus is to understand how Islamic ethical disclosure affects financial indicators such as the loan to deposit ratio (LDR) and debt to asset ratio (DAR). Design/methodology/approach – The study utilizes secondary data from 267 firm observations over the period 2010–2020. Data were collected from the annual reports of Islamic and conventional banks in the MENA region. The analysis techniques involve ordinary least squares (OLS) and robustness tests using a two-stage Heckman approach to address endogeneity issues. Findings – The results indicate that Islamic ethical disclosure has a significant positive relationship with the performance of Islamic banks. Islamic ethics (IEs) contribute to improving LDR and DAR by applying principles of transparency and justice, which strengthen customer loyalty, enhance investor trust and improve bank liquidity and funding structures. Practical implications – This study provides practical contributions by offering a MENA-based model that can be used to strengthen regulatory standards related to Islamic ethical disclosure. This is crucial for developing policies and business practices aligned with Islamic values, thereby improving the financial performance of Islamic banks. Originality/value – The study adds to the literature by integrating a new empirical approach to measure the impact of Islamic ethical disclosure on Islamic banking performance. Additionally, it broadens the scope by including Islamic business units, which have been underexplored in previous research.