Performance measurement system, attitude toward risk and the performance of profit sharing financing in Indonesian Islamic Bank

Abstract

This study was undertaken to investigate the relationship between diagnostic and interactive use of performance measurement system (PMS), attitude toward risk and profit sharing (PS) financing performance in Islamic banks. PS financing performance is conceptualised using two dimensions, i.e. the quantity and the quality of PS financing performance. Utilising a survey method, questionnaires were mailed to 115 Islamic Rural Banks in Indonesia, out of them, 69 (62%) were returned and used for analysis. The results found positive relationship between diagnostic use of PMS and attitude toward risk and negative relationship between interactive use of PMS and attitude toward risk. Although the results also provide support for the negative relationship between attitude toward risk and the quality of PS financing, we find no support for the relationship between attitude toward risk and quantity of PS financing. This study provides evidence on the role of PMS in Islamic banking institutions.