1. Assistant Professor COMSATS Institute of IT, Wah Pakistan
The Impact of Islamic Governance Mechanisms on Corporate Governance Compliance and Disclosure
Dr. Muhammad Yar Khan
Assistant Professor COMSATS Institute of IT, Wah Pakistan
Dr. Tahira Awan
Assistant Professor International Islamic University Islamabad, Pakistan
Naima Saleem
Lecturer, COMSATS Institue of IT, Wah Pakistan
Anam Javeed
PhD Scholar, Universiti Utara Malaysia 1

2. Introduction
‘Shariah’ is providing comprehensive guidance for practicing Muslims in every aspect of day-to-day life (Abu-Tapanjeh, 2009; Kamla, 2009).
Consequently, trade, commerce, business and financial transactions are expected to generally reflect Islamic principles.
The main objective of this paper is to examine the extent to which corporate commitment to incorporate Islamic values in their operations, as well as conventional ownership structure and CG mechanisms influence the level of information that Pakistani listed firms disclose on their CG practices. 2

3. Literature Review
Empirical studies that examine the extent to which Islamic values are incorporated into business operations and voluntary disclosure of CG practices are rare, and thus provide opportunities to contribute to the literature.
Albassam et al. (2017) finds a positive relationship between Islamic Values and CG disclosure in Saudi firms.
Using 15 Islamic banks in Bahrain from 2004 to 2007, Vinnicombe (2010) measures the level of compliance with accounting and governance standards issued by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI).
She reports that compliance with AAOIFI’s disclosure guidelines regarding SSBs and ‘murabahah’ contracts are high, but low with respect to AAOIFI’s disclosure requirements on the ‘zakah’ and ‘mudarabah’ contracts. 2

4. Methodology The PCGI is made by utilizing different 70 CG provisions.
The areas covered are (i) the board of directors (BOD); (ii) internal auditing and committees (IAC); (iii) shareholders right (SHR); (iv) transparency and disclosure (TAD); and (v) Internal Control, External Auditor and Risk Management (ICRM).
Islamic Governance Index (IGI) containing 10 Islamic business and money related provisions. 2

5. Methodology
Data is collected on ownership structure, including Block Ownership (BOWN), government ownership (GOWN), and institutional proprietorship (IOWN) besides, board/CG properties, including size of the board (BSIZ) and audit firm size (ASIZ).
Control Factors: These consolidate risk (Beta), return on assets (ROA), sales growth(SGRO), Leverage (LEV), firm size (FSIZ), capital expenditure (CXP), dividend payment status (DPS), industry Dummy (IDM), and year Dummy (YDM). 2

6. Descriptive Statistics
Table 1: Summary of descriptive statistics
All
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Level of compliance with Islamic Governance Index
Mean
28.11
23.62
24.55
26.77
27.66
30.60
30.76
32.13
34.33
33.55
34.40
25.57
Median
26.55
23.65
22.37
22.38
26.62
26.61
30.88
27.78
28.33
23.45
STD
12.87
7.65
9.54
12.98
13.37
14.25
11.30
12.22
12.32
23.55
13.65
14.66
Min
9.11
9.12
14.55
17.26
17.25
17.24
17.00
15.66
16.45
Max
85.33
55.44
64.66
80.81
85.44
80.23
86.34
81.22
82.34
84.55
87.88 2

7. Descriptive Statistics
Table 2: Summary of descriptive statistics Statistics of Determinant of level of compliance with PCGI
Y2004
Y2005
Y2006
Y2007
Y2008
Y2009
Y2010
Y2011
Y2012
Y2013
Y2014
ALL
Mean
20.56
23.76
31.17
40.31
47.66
53.88
67.50
73.60
77.57
83.88
85.16
55.00
Median
15.00
19.38
29.38
41.88
50.63
58.75
78.75
86.88
90.94
94.38
95.00
60.60
Maximum
65.63
74.38
79.38
80.63
82.50
88.75
93.75
96.88
98.75
99.38
82.61
Minimum
1.25
0.63
1.88
3.13
3.75
5.00
5.63
7.50
9.38
4.43
Std. Dev.
15.37
15.13
15.46
17.25
18.82
19.69
24.20
25.99
26.37
20.95
19.72
18.03
Observations
70.00

8. Descriptive Statistics (Explanatory Variables)
Table 3: Descriptive statistics for explanatory variables
Variables
Mean
Median
STD
Min
Max
ASIZ%
55.90
99.90
51.52
0.00
100.00
BOWN%
32.89
29.11
24.11
5.00
84.22
BSIZ
8.42
8.10
1.61
11.00
CGCO%
9.90
30.32
GOWN%
13.96
2.15
22.05
84.66
IOWN%
5.58
9.95
40.11
Control Variables
CXP%
59.22
0.74
155.44
82.31
DPS%
62.12
47.00
0.01
FSIZ
13.02
14.97
2.66
9.43
18.96
LEV%
23.44
8.33
26.90
85.00
BETA
2.69
1.12
2.86
14.94
ROA%
7.54
4.57
7.67
-7.99
26.74
SGRO%
14.55
9.33
34.54
-45.16
140.00 2

9. OLS and Multivariate Analysis
Table 3: The Impact of Islamic Governance on CG disclosure
PCGI- main index BOD sub-index IAC sub-index SHR sub index TAD sub-index
Indep V
Co-eff
p-values
P-values
Co-Eff
IGI
0.188
0.000⃰ ⃰ ⃰
0.139
0.0 ⃰ ⃰ ⃰
0.094
0.03 ⃰ ⃰
0.228
⃰ ⃰ ⃰
0.128
0.0 ⃰ ⃰ ⃰
BOWN
-0.117
0.022 ⃰ ⃰
-0.111
0.04 ⃰ ⃰
-0.106 ⃰
-0.112
0.723
-0.133
⃰ ⃰
GOWN
0.166
0.0 ⃰ ⃰ ⃰
0.144
0.119
0.01 ⃰ ⃰ ⃰
0.145
0.00 ⃰ ⃰ ⃰
IOWN
0.225
0.027
0.554
0.075
0.045 ⃰
0.066
0.066 ⃰
0.105
⃰ ⃰
BSIZ
0.122
0.01 ⃰ ⃰
0.114 ⃰
0.01
0.779
0.111
0.02 ⃰ ⃰
0.123
ASIZ
0.233
0.0 ⃰ ⃰ ⃰
0.228
0.12
0.223
0.021
0.693
CGCO
0.266
0.00 ⃰ ⃰ ⃰
0.188
0.15
0.244 2

10. OLS and Multivariate Analysis
Control variables: firm level characteristics
CXP
-0.044
0.188
-0.033
0.299
-0.072 ⃰
-0.022
0.277
0.195
DPS
0.245
⃰ ⃰ ⃰
0.134
0.122
0.225
0.135
0.000 ⃰ ⃰ ⃰
FSIZ
0.387
0.266
0.244
0.238
0.355
RISK
-0.116
0.045 ⃰ ⃰
-0.095 ⃰
-0.087 ⃰
-0.077 ⃰
-0.089
LEV
0.177
0.166
0.254
0.156
ROA
-0.028
0.643
-0.012
0.799
-0.006
0.833
-0.004
0.877
-0.007
SGRO
0.255
-0.026
-0.032
0.332
-0.024
0.442
0.334 2

11. OLS and Multivariate Analysis
Industry dummies
Included
Year dummies
Constant
-0.699
0.00
-0.577
-0.466
-0.430
0.000
-0.166
Durbin-Watson statistics
1.952
1.744
1.688
1.655
1.766
F-value
16.822
14.699
13.888
12.882
15.399
Adjusted R squared
0.499
0.455
0.466
0.430
0.477
No of observations
1760 2

12. Robustness Analysis Weighted PCGI Fixed effects Independent variable
Co-eff
p-values
Islamic values disclosure index
IGI
0.122
0.000⃰ ⃰ ⃰
0.239
⃰ ⃰ ⃰
Control variables: ownership structure variables
BOWN
-0.087 ⃰
-0.088
0.055 ⃰
GOWN
0.157
0.167
⃰ ⃰ ⃰
IOWN
0.225
⃰ ⃰
0.133
0.028 ⃰
Control variables: corporate governance variables
BSIZ
0.137
0.143
ASIZ
0.220
0.238
CGCO
0.188
0.198
0.000 ⃰ ⃰ ⃰ 2

13. Robustness Analysis Control variables: firm level characteristics CXP
CXP
-0.044
0.188
-0.033 ⃰
DPS
0.245
⃰ ⃰ ⃰
0.218
FSIZ
0.255
0.266
BETA
-0.134
0.045 ⃰ ⃰
-0.133
LEV
0.163
0.168
ROA
-0.013
0.680
-0.008
0.711
SGRO
-0.006
0.775
-0.022
0.734
Industry dummies
Included
Year dummies
Firm dummies
Excluded
Constant
-0.877
-0.933
Durbin-Watson statistics
1.880
1.867
F-value
⃰ ⃰ ⃰
⃰ ⃰ ⃰
Adjusted R squared
0.577
0.699
No of observations
1760 2

14. Thank You 