FIRM CHARACTERISTICS, SHARIAH GOVERNANCE AND CREDIT (FINANCING) RISK

Abstract

The objectives of the study are to obtain empirical findings (1) the influence of firm
characteristics (ownership structure, profitability, firm size, corporate leverage) on shari'ah
governance. (2) the influence ofshari'ah governance on credit risk (financing risk). Shari'ah
governance, as a mechanism for ensuring shari'a compliance, is being the concern ofvarious
parties (regulators, industry players, consultants and researchers). Thus this research is
expected to contribute on how the implementation of shari'ah governance, determinant and
impact.
The research objectives were achieved by SEM model of Partial Least Square (SmartPLS
v.3.2.6). The PLS model is a powerful soft modeling that can be applied to any data scale,
does not require many assumptions and the sample size is not too large.
The results of model fit test show that there are only three variables that fit to influence
shari’ah governance: ownership structure, profitability and company size. While the
analysis ofthe three factors is only two factors that proved to influence shari’ah governance:
the ownership structure and the firm size. The ownership structure has been shown to
negatively affect the implementation of shari’ah governance. Firm size proved to positively
affect the implementation of sharia governance. While the leverage and profitability did not
influence the implementation ofshari’ah governance. Shariah governance is also to have no
effect on financial risk
Keywords: Shari'ah Governance, ownership structure, profitability, firm size, credit
(financial) risk