Islamic Corporate Social Responsibility Disclosure in Organization of Islamic Cooperation Countries

As Islam does not recognize the separation between sacred and secular matters, it requires all economics activities to be carried out in accordance to shariah. As a result, the need for shariah approved companies (SACs) becomes undeniable. Similar to the Western setting, Islamic CSR disclosure has also become an important issue for SACs. Nevertheless, studies on Islamic CSR disclosure are limited. Most of the prior studies focus on CSR disclosure by Islamic financial institution. They also tend to utilize the concept of CSR disclosure from the West, leading to the need for understanding CSR and its disclosure from an Islamic perspective.

The aim of this study is to investigate Islamic corporate social responsibility disclosure by SACs in Organization Islamic Cooperation (OIC) countries. Particularly, it is intended to achieve four specific objectives: firstly, to develop an Islamic CSR disclosure instrument that can measure the level of Islamic CSR disclosure; secondly, to document the content and level of Islamic CSR disclosure in the sample of OIC countries; thirdly, to identify the differences in Islamic CSR disclosure across OIC countries; and fourthly, to determine factors influencing Islamic CSR disclosure level in OIC countries.

This study applied deductive reasoning based on the concept of tawhid and maqasid ashshari’ah as well as current literature on CSR disclosure to develop Islamic CSR disclosure instrument. Then, the instrument was used as a benchmark for documenting the content and level of Islamic CSR disclosure in annual reports of SACs through content analysis. A total of 90 SACs from Indonesia, Malaysia, and Pakistan were selected as the sample of the study. Next, qualitative comparison analysis was applied to identify the differences in the content of Islamic CSR disclosure across OIC countries. Additionally, quantitative comparison using analysis of variance (ANOVA) and Kruskall Wallis test were also applied to identify whether there was any difference in the level of Islamic CSR disclosure across countries. Lastly, this study performed regression analyses to test six hypotheses formulated based on prior studies and the existing theories. In turn, the findings of the analyses were used to identify the determinants of Islamic CSR disclosure level in the sample of OIC countries.

The empirical investigation observed several findings. Firstly, the results of the content analysis show that SACs in the sample countries disclosed 34% of the benchmark, on average. Employee category was considered as the most disclosed category followed by shareholder, community, environment, customer, government, debtor, supplier and other business partners. Secondly, there were noticeable differences in Islamic CSR disclosure by SACs from Indonesia, Malaysia, and Pakistan. In general, Indonesian SACs tended to focus their disclosure on social and environmental issues, whereas Malaysian SACs tended to focus on economical issues. For Pakistani SACs, their disclosure was more religious. Thirdly, the regression analyses found state-ownership, company size, and country variable as significant variables in determining Islamic CSR disclosure. In more specific analyses conducted by category, the results provided evidence for state-ownership, company size, country, profitability, industry sensitivity and media exposure as significant determinants of Islamic CSR disclosure level. All regression models observed in this study can be considered good as the values of adjusted R2 ranged from 37% to 59%.

This study may have contribution for knowledge, methodological, theoretical and practical. In term of knowledge contribution, this study introduces the notion of dual responsibilities, Islamic CSR pyramid and Islamic CSR disclosure instrument. For methodological contribution, this study offers three different measurements to gauge the quality of Islamic CSR disclosure, which are quantitative index, comprehensiveness index, and Islamic index. With regard to the theoretical contribution, this study may provide an opportunity to understand CSR disclosure in a well-defined and different cultural that happens to be driven by religion. Additionally, it provides an initial conclusion that CSR from the West has a potential to bridge Islamic accounting and accounting from the mainstream theory. Lastly, the practical contribution of this study is that it may help Islamic capital market regulator in enhancing the screening process of SACs. Additionally, it may guide manager and business practitioners how to operate their business in accordance to shari’ah if they want to remain acceptable in Islamic countries or Muslim majority countries.