Impact of Islamic Corporate Governance on Sustainability Performance in Islamic Banks of Pakistan: Moderating Role of Insider Ownership and Institutional Ownership

Abstract

This study aims to investigate the impact of Islamic Corporate Governance (ICG) on Social Sustainability Performance (SP) in Islamic Banks of Pakistan, focusing on the moderating role of insider and institutional ownership. The study derives influential Islamic CG mechanisms from the theoretical perspectives of Agency Theory, Institutional Theory, and Legitimacy Theory, primarily focusing on Shariah board attributes and ownership structure. The study uses the Ordinary Least Square (OLS) for regression analysis and proposes three propositions to enhance social sustainability performance through responsible decision-making. The study results reveal that Islamic corporate governance significantly influences social sustainability performance, with Shariah board independence having a positive impact while size, competence, and process have a negative impact. The ownership structure of Islamic banks in Pakistan also significantly moderates the relationship between Islamic corporate governance and social sustainability performance, with insider ownership and institutional ownership playing a significant role. This study provides policy insights for policymakers, practitioners, and corporate boards to promote sustainablen operations through Islamic corporate governance, adding to existing developmental plans to address sustainability-related issues. This study also contributes to the literature by establishing the nexus between Islamic corporate governance and triple-bottom-line performance in IBs.