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THE EFFECT OF COMPANY SIZE, BOARD OF DIRECTORS SIZE,
PROFITABILITY, LEVERAGE AGAINST ISLAMIC SOCIAL REPORTING
ON SHARIA COMMERCIAL BANKS IN INDONESIA
Dedy Suriadi
Universitas Syiah Kuala, Banda Aceh, Indonesia
dedysuriadi93@gmail.com
ABSTRACT
This study aims to examine the effect of company size, board size, profitability, leverage on Islamic
social reporting on Islamic commercial banks in Indonesia. The population in this study is all Sharia
Commercial Banks in Indonesia as many as 14 Sharia Commercial Banks in the period 2016-2019. The
sampling technique is a saturated sampling technique which is often called the census method. The data
source in this study used secondary data. The analysis method used is multiple linear regression analysis.
The results of this study show that company size, board of directors size, profitability, and leverage
together affect Islamic Social Reporting (ISR) at Sharia Commercial Banks in 2016-2019. Furthermore,
the size of the company negatively affects ISR. The size of the board of directors positively affects ISR.
Profitability negatively affects ISR, and leverage negatively affects ISR in Sharia Commercial Banks in
2016-2019.
Keywords: Company Size; Board of Directors; Profitability; Leverage; Islamic Social Reporting
INTRODUCTION
The era of globalization triggers all companies, both national and international, to be more
competitive in maximizing the rate of growth and survival of the company (Inuzula & Hasan Basri,
2015). This requires companies to make various efforts to realize priorities in maximizing profits
both in financial and non-financial terms. Sari & Helmayunita (2019) states that one of the
company's efforts in maximizing company profits is by building and developing the principle of
corporate social responsibility or known as Corporate Social Responsibility (CSR).
CSR is a mechanism for integrating social issues and environmental issues into company
operations, which can then be communicated with stakeholders (Babatunde & Adeyemi, 2015). The
concept of CSR shows that companies must prioritize the interests of stakeholders over
shareholders. Therefore, CSR is considered as a strategic framework to increase competitiveness
and achieve sustainable business (Jaiyeoba et al., 2018).
In Indonesia, awareness about CSR can be seen from the increasing number of business
units that report CSR in their annual financial statements. Initially, CSR disclosure did not become
a necessity or obligation that must be carried out by the industry. But now, CSR disclosure is no
longer voluntary in Indonesia, but part of the company/industry's obligations. CSR disclosure is
mandatory for all industries that want to go public on the Indonesia Stock Exchange (IDX)
(Pratiwi, 2019).
Along with the global trend of CSR practices and disclosures, the banking industry has also
listed aspects of social responsibility in its annual report. The disclosure is not only carried out by
conventional banks, but also carried out by Islamic banks (Fitria & Hartati, 2010). Islamic banking
in the last decade has continued to show positive growth as reflected by the growing business
volume, as well as increasing public investment and deposits as well as financing. Sharia banking
growth in 2015-2018 increased by 33.2% compared to 12% in 2010-2014 (Wahyudi, 2019).
Dusuki & Dar (2005) Stating that social responsibility in Islamic banking is very interesting
to discuss, because Islamic banking is already based on sharia so that it can operate on the basis
of morals, ethics and social responsibility. In addition, Islamic banking applies the principle of
public interest, namely avoiding damage and poverty. However, Farook & Lanis (2005) stated that
Islamic banks have not maximized in implementing their social functions with Islamic values.
Therefore, Islamic banking needs a more precise social reporting framework to measure the extent
to which Islamic banking presents social responsibility reports based on Islamic aspects.
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The measurement of CSR disclosure in Islamic banking still refers to the Global Reporting
Initiative Index (GRI Index, but the measurement of the GRI index is considered inaccurate
because it does not describe Islamic principles as a whole, such as it has not disclosed Islamic
banking practices that are free from elements of usury, gharar, and transactions prohibited by
Islam, so it is not appropriate to use benchmarks in CSR disclosure on Islamic Banking (Umiyati
& Baiquni, 2018). Therefore, an index measurement that better reflects sharia principles is used,
namely the Islamic Social Reporting Index (ISR index).
The ISR Index is an index to measure the level of social disclosure in accordance with
sharia principles. Research to develop a social responsibility reporting index for Islamic
companies continues. Haniffa (2002) states that the conceptual framework of ISR based on the
provisions of Islamic Sharia is not only helpful for Muslim decision makers, but also helps
companies in fulfilling obligations towards Allah Almighty and society. Maali, Casson, & Napier
(2006) developed an index that focuses more on Islamic banks' zakat activities with the results
showing that banks that spend zakat tend to make better disclosures.
Fitria &; Hartati (2010) in (Mais & Alawiyah, 2020) stated that the ISR index is believed to
be a starting point in terms of CSR disclosure standards that are in accordance with the Islamic
perspective, because in the ISR index has been disclosed regarding matters related to Islamic
principles, such as zakat, sharia compliance status (sharia compliance). In addition, the ISR index
also emphasizes social justice related to reporting on the environment, minority rights, and
employees.
Othman and Thani (2009) stated that ISR disclosure is considered to be an added value for
investors who want to invest in it, because if the company is responsible to the community /
consumers, the greater the responsibility to its shareholders. In addition, ISR can also increase
public attention to sharia institutions or institutions.
There are several factors thought to influence ISR disclosure. The first factor is the size of
the company. The size of the company can be interpreted as a comparison of the size or size of
the wealth (assets) owned by a company (Santoso & Dhiyaul-Haq, 2017). Statistical data from the
Financial Services Authority (OJK) shows that the total assets of Sharia Banks in 2018 grew by
12.5% to Rp. 444 trillion where the total assets of Sharia Banks in 2017 amounted to Rp. 424
trillion. The average growth of Islamic bank assets is generally higher than conventional banks,
amounting to 18.81% in 2012-2018 (Jayani, 2019). The size of the company affects the ability of
management to operate the company with various situations and conditions faced. The larger the
size of the company, the more financial resources, facilities, and human resources will be
disclosed on the ISR index. The size of the company is thought to affect ISR, where if the size of
the company is getting bigger, the information available to investors in making company
decisions is increasing (Pratiwi, 2019). This is supported by Baiquni & Umiyati (2018), Setiawan
et al (2016), Hartawati et al. (2017), Jannah & Asrori (2016), and Siddi, et al (2019), Faricha (2018),
Wulandari (2015), Permatasari (2015) and Pratiwi & Andriyani (2019) which states that the size of
the company affects the disclosure of ISR in the annual report. But Rosiana, et al (2015) states
that the size of the company has no effect on ISR.
The second factor is the size of the board of directors. The Board of Directors has an
important role in carrying out the company's operations professionally and must pay attention to
all stakeholders. Octafia & Khairin (2014) which shows the results of his research that the board
of directors has a positive influence on Islamic social reporting. However, Rahayu & Cahyati
(2014) states the size of the board of directors has no effect on ISR.
The third factor is the profitability of the company. Muhammad (2014) Disclosing
profitability ratios can indicate the level of effectiveness achieved through the bank's operational
efforts. Profitability describes the higher the level of profit or profit obtained by the company, the
manager will provide more motivation to make wider ISR disclosure, so that they benefit from
the profit. This is supported by Nabila et al. (2018), Wardani & Sari (2019), Kurniawati & Yaya
(2017), Wulandari (2015), and Permatasari (2015) which states that profitability has a significant
effect on ISR in the annual report. However, it is different from the results of Rosiana et al's
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research (2015) dan Santoso & Dhiyaulhaq (2017) which states that profitability has no effect on
ISR. The fourth factor is leverage. Leverage is a tool used to measure the size or size of a
company in financing derived from debt to creditors in financing company assets. The higher the
leverage, the lower the disclosure of social responsibility carried out by the company's
management. This is supported by Rizkianingsih (2012), Widayuni (2014), and Pratama et al
(2018) which states that leverage has an effect on ISR. However, in contrast to the results of
research Nabila et al. (2018) also stated that leverage has no effect on ISR.
Based on the description above, it is important to conduct a follow-up research as an effort
to examine the effect of company size, board size, profitability and leverage on ISR. Related to
this, this research was conducted entitled "The Effect of Company Size, Board of Directors Size,
Profitability, and Leverage on Islamic Social Reporting at Sharia Commercial Banks in
Indonesia”.
RESEARCH METHOD
Research design is a framework that will be used to make it easier for researchers to conduct
research, because everything has been planned based on the sequence of research. In this study,
the population consisted of all Sharia Commercial Banks in Indonesia as many as 14 Sharia
Commercial Banks which were used as the study population. The time span used is four years
starting from 2016 to 2019. Because the number of available populations is relatively small, this
study uses saturated sampling, which is a sampling technique when all members of the population
are used as samples.
The data collection techniques used in this study were observation, documentation, and
online data search. The observation method is a wrestling of data used to collect research data.
The documentation method is a method of collecting some data related to research variables that
have been available. Online data tracing methods are procedures for conducting data searches
through online such as the internet or other network media that provide online facilities in the
form of data and theoretical information, as quickly and easily as possible and can be accounted
for academically. The data of this study are collected on the official website of each BUS, as well
as books and other scientific literature related to the variables discussed in this study.
RESULT AND DISCUSSION
Research Results
1. Descriptive Analysis
Descriptive analysis aims to describe or describe the characteristics of the data that has
been collected as it is without intending to make generally accepted conclusions or
generalizations. The characteristics of the data or variables described include minimum value,
maximum value, average value, and standard deviation (data deviation rate). The results of
descriptive statistics in this study can be seen in Appendix XI letter (A), with the summary
presented in Table 1. Table 1
Descriptive Analysis
Description
N
Minimum
Maximum
Mean
Std.
Deviation
ISR
56
0,5294
0,8235
0,6807
0,1170
Company Size
56
28,33
32,98
30,63
1,3159
Board of Directors
56
3
8
4,63
1,3960
Profitability
56
-0,1123
0,091
0,0086
0,0281
Leverage
56
0,0541
0,8844
0,2830
0,2683
Source: Output SPSS (processed, 2021).
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Table 1 shows that the independent variable (X1) i.e. company size measured using Log
Natural total assets had the lowest value of 28.33% owned by Bank Victoria Syariah in 2016. The
results show that Bank Victoria Syariah had the lowest total assets in 2016. The highest value of
32.98 owned by Bank Panin Dubai Syariah in 2019. The results show that Bank Panin Dubai
Syariah in 2019 has the highest total assets. The average value of 30.68 means that the total assets
owned by Sharia Commercial Banks during the 2016-2019 period have an average index value
of 30.63. Furthermore, the standard deviation of 1.3159 is less than the average value of total
assets, which means that the variation in company size to average value is lower, or in other
words, the data varies homogeneously.
Table 1 shows that the independent variable (X2) is the size of the board of directors as
measured by looking at the number of boards of directors measured by looking at the number of
boards of directors in each bank that obtain a minimum value of 3 which means that the number
of boards of directors is at least 3% of the total board of directors. The lowest number of boards
of directors was owned by Bank Victoria Syariah, Bank Mega Syariah, Bank Panin Dubai Syariah
and Bank BCA Syariah in 2016, in 2017 the lowest number of directors was owned by Bank
Mega Syariah, Bank Panin Dubai Syariah and Bank BCA Syariah. Furthermore, in 2018 the
lowest number of boards of directors was owned by Bank Mega Syariah and Bank Panin Dubai
Syariah. Then, in 2019 the lowest number of board of directors was only owned by Bank Mega
Syariah. While the maximum value of the board of directors is 8 which means the highest number
of boards of directors owned by Bank Maybank Syariah and Bank Muamalat in 2016. In 2018-
2019, the highest number of board of directors was only owned by Maybank Syariah Bank. The
average value of the board of directors is 4.63 which means that the number of boards of directors
owned by Sharia Commercial Banks in Indonesia in 2016-2019 averaged 5 people owned by
Sharia Commercial Banks. Furthermore, the standard deviation of 1.3960 is less than the average
value of the board of directors, meaning that the variation of the board of director data against the
average is low, in other words the data varies homogeneously.
Furthermore, Table 1 shows that the independent variable (X3) i.e. profitability
measured using ROA has the lowest value of 0.1123 owned by Bank Panin Dubai Syariah
in 2017, which is 11.23%. The highest value of 0.091 owned by Bank BTPN Syariah in
2019. The results show that Bank BTPN Syariah in 2019 had the highest net profit, which
was 9.10%. The average value of 0.0086 means that the net profit owned by Sharia
Commercial Banks during the 2016-2019 period has an average index value of 0.0086 or
0.86%. Furthermore, the standard deviation of 0.0281 is greater than the average value of
net income, which means that the variation in profitability to the average value is high or
in other words, the data varies heterogeneously.
Furthermore, Table 1 shows that the independent variable (X4) is leverage measured using
a DER (debt to equity ratio) proxy, i.e. by comparing total debt to total equity. Based on Table 1,
the minimum leverage value is 0.0541, which means that the lowest leverage level is 5.41% of
total equity. This lowest leverage level was owned by Bank BPD NTB Syariah in 2018. While
the maximum leverage value is 0.8844 which means the highest leverage level is 88.44% of the
total equity. This highest level of leverage was owned by Maybank Syariah Bank in 2016. The
average leverage value is 0.2830 which means that the level of leverage owned by Sharia
Commercial Banks in Indonesia in 2016-2019 averaged 28.30% of its total equity. Furthermore,
the standard deviation of 0.2683 is less than the average value which means that the variation in
leverage to the average value is low or in other words the data varies homogeneously.
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2. Classical Assumption Testing Table 2
Classical Assumption Testing
Description
Normality
Multicolonicity
Heteroscedasticity
K-S Test
Sig.
Tolerance
VIF
T Test
Sig.
Company
Size
0,533
1,876
-1,931
0,059
Board of
Directors
1,170
0,130
0,748
1,337
2,143
0,037
Profitability
0,985
1,016
0,828
0,411
Leverage
0,652
1,534
0,855
0,396
pSource: Output SPSS (processed, 2021).
Based on Table 2 it can be known that the significant value on the Kolmogorov-Smirnov
Test is above 0.05, so that it meets the assumption of normality and the data is normally distributed
and feasible for use. Furthermore, the tolerance value is close to 1 and the VIF value is smaller
than 10, thus satisfying the assumption of multicollinearity. The tolerance value obtained for
company size, board of directors, profitability and leverage is still above 0.1, from these results it
can be seen that in the regression model free from multicollinearity between independent
variables. Next, the significant value of the variables of company size, board of directors,
profitability, and leverage is greater than 0.05, thus satisfying the assumption of heteroscedasticity
because the variance is different.
3. Multiple Linear Regression Testing
Table 3
Multiple Linear Regression Testing
Description
Unstd Coefficients
t
Sig.
F
Sig.
B
Std. Error
Constant
0,989
0,448
2,207
0,032
Company
Size
-0,012
0,016
-0,74
0,462
Board of
Directors
0,019
0,013
1,493
0,142
2,222
0,080
Profitability
-0,539
0,548
-0,983
-0,330
Leverage
-0,122
0,070
-1,74
0,088
Dependent Variable: Islamic Social Reporting
Based on Table 4.3, the regression equation is obtained:
𝛄 = 𝟎, 𝟗𝟖𝟗𝐚 − 𝟎, 𝟎𝟏𝟐𝐱𝟏+ 𝟎, 𝟎𝟏𝟗𝐱𝟐− 𝟎, 𝟓𝟑𝟗𝐱𝟑− 𝟎, 𝟏𝟐𝟐𝐱𝟒+ 𝛆
The regression equation above can be explained, namely:
1) The constant value of the regression equation above is 0.989, which means that if there
are no variables of company size, board size, profitability, and leverage, then Islamic
Social Reporting (ISR) is 98.9%.
2) The firm size regression coefficient is -0.012, which means that if the percentage of
company size increases, the ISR will decrease by 1.2%.
3) The regression coefficient of board size is 0.019, which means that if the size of the board
of directors increases, then the ISR will also increase by 1.9%.
4) The profitability regression coefficient is -0.539, which means that if the profitability
percentage increases, the ISR will decrease by 53.9%.
5) The leverage regression coefficient is -0.122, which means that if the leverage percentage
increases, the ISR decreases by 12.2%.
Based on the results of the linear regression analysis test, it can also be known the size of
the relationship between the independent variable and the dependent variable (correlation
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coefficient), along with its influence (coefficient of determination) which shows how much
variance in the dependent variable can be explained by the independent variable in the regression
model. This is presented in Table 4. Table 4
Correlation Coefficient
Koefisien Korelasi (R)
Koefisien Determinasi (R
Square)
Ajusted R Square
0,385
0,148
0,082
Source: Output SPSS (processed, 2021).
Based on Table 4, it can also be known the relationship between the intended variables with
a correlation coefficient value of 0.385, which means the relationship between company size,
board of director size, profitability, and leverage of 38.5%. Based on the interpretation of the
correlation coefficient (see Table 3), the value of the coefficient of 38.5% has a low degree of
relationship. In addition, it is also known the magnitude of the influence of these four variables
on ISR which is intended with a coefficient of determination (adjust R Square) value of 0.148,
which means that company size, board of directors, profitability, and leverage affect ISR by
14.8%, while the remaining 85.2% is called error term, which is the influence of other variables
on ISR.
4. Hypothesis Testing
Hypothesis testing refers to the formulation of hypotheses that have been formulated in
the previous chapter, namely:
1) Simultaneous testing of hypotheses
Ha : The Value βı = -0,012, β₂ = 0,019, β3 = -0,539, and β4 = -0,122 then βı=β2=β3=β4≠0.
Ha is thus accepted, meaning that company size, board of directors, profitability, and
leverage together influence Islamic Social Reporting (ISR).
2) Partial hypothesis testing of capital expenditure allocation
Ha1 : The value of βı = -0.012, then βı≠0. Thus, Ha1 is accepted, meaning that the size of the
company partially affects Islamic Social Reporting (ISR).
Ha2 : The value of β2 = 0.019, then β2≠0. Thus, Ha2 is accepted, meaning that the size of the
board of directors partially affects Islamic Social Reporting.
Ha3 : The value β3 = -0.539, then β3≠0. Thus, Ha3 is accepted, meaning that profitability
partially affects Islamic Social Reporting (ISR).
Ha4 : The value of β4 = -0.122, then β4≠0. Thus, Ha4 is accepted, meaning that leverage
partially affects Islamic Social Reporting (ISR).
Discussion
The Effect of Company Size on Islamic Social Reporting (ISR)
Based on Table 3, the value of the regression coefficient of company size to ISR is -0.012.
In the design of the hypothesis test, the requirement to state that the size of the company has an
effect on ISR if βı≠0. Referring to these conditions, the results of this study accept Ha1 accepted.
Thus, it can be said that the size of the company affects the ISR of Sharia Commercial Banks in
Indonesia in 2016-2019.
The value of the company size regression coefficient of -0.012 also indicates that the size
of the company has a negative influence on ISR disclosure. This means that the higher the size of
the company, the lower the ISR disclosure made by Sharia Commercial Banks in Indonesia. This
indicates that larger companies do not necessarily have competent and qualified human resources,
so they are not able to carry out wider social disclosure (Othman et al., 2009).
The results of this study are in line with research conducted by Lestari (2013), Maulida, et
al. (2014) , Rosiana, et al. (2015), and Kariza (2018) (2018) (2012), Roziani (2010), and Rama
(2014), Baiquni & Umiyati (2018), Setiawan et al (2016), Hartawati et al. (2017), Jannah &
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Asrori (2016), dan Siddi, et al (2019), Faricha (2018), Wulandari (2015), Permatasari (2015) and
Pratiwi & Andriyani (Pratiwi, 2019) which states that the size of the company positively affects
ISR.
The Effect of Board of Directors Size on Islamic Social Reporting (ISR)
Based on Table 3, the regression coefficient value of the board of director size to ISR is
0.019. In the draft hypothesis test, it is required to state that the size of the board of directors has
an effect on the ISR if β2≠0. Referring to these conditions, the results of this study accept Ha2
accepted. Thus, it can be said that the size of the board of directors affects the ISR of Sharia
Commercial Banks in Indonesia in 2016-2019.
The regression coefficient value of board size of 0.019 also indicates that the size of the
board of directors has a positive influence on ISR disclosure. This means that the higher the size
of the company's board, the more ISR disclosure is made by Sharia Commercial Banks in
Indonesia. This is because the board of directors has a very important role in providing correct
financial statements, so that with the board of directors will improve the quality of financial
statements and be used as executors in the company, it is hoped that with good performance, ISR
will be wider because it can minimize information that may be hidden from management. So that
with the large number of boards of directors, it will improve the performance of all management
and obey the rules that have been set. The results of this study are in line with the results of
research by Rahayu &; Cahyati (2014), and Oktafia &Khairin (2014) showing that the size of the
board of directors has a positive effect on Islamic social reporting.
The Effect of Profitability on Islamic Social Reporting
Based on Table 3, the value of the profitability regression coefficient to ISR is -0.539. In
the design of the hypothesis test, the requirement to state that profitability has an effect on ISR if
β3≠0. Referring to these conditions, the results of this study Ha3 are accepted. Thus, it can be said
that profitability affects the ISR of Sharia Commercial Banks in Indonesia in 2016-2019.
The value of the profitability regression coefficient of -0.539 also indicates that profitability
has a negative influence on ISR disclosure. The results of this study mean that the greater the
ROA, the lower the ISR disclosure. This is due to the perception or assumption that ISR activities
are not harmful activities and are not beneficial for the sustainability of Islamic banking, but as
the best step in the future that will have a positive impact on Islamic banking, so that even in a
state of loss, Islamic banking will continue to carry out and disclose social responsibility in a
sharia manner to obtain legitimacy and positive value from the wider community. The results of
this study are in accordance with the results of Rosiana, et al (2015). and Santoso & Dhiyaulhaq
(2017) which states that profitability negatively affects ISR. However, this study is not consistent
with the results of the study Nabila et al. (2018), Wardani & Sari (2019), Kurniawati & Yaya
(2017), Wulandari (2015), and Permatasari (2015) which states that profitability positively affects
ISR in the annual report.
The Effect of Leverage on Islamic Social Reporting
Based on Table 3, the value of the leverage regression coefficient against ISR is -0.122.
In the design of the hypothesis test, it is required to state that leverage has an effect on the ISR if
β4≠0. Referring to these conditions, the results of this study Ha4 are accepted. Thus, it can be said
that leverage affects the ISR of Sharia Commercial Banks in Indonesia in 2016-2019.
The value of the leverage regression coefficient of -0.122 also indicates that leverage has a
negative influence on ISR disclosure. The results of the study mean that the greater the leverage,
the lower the ISR disclosure. This leverage arises because the company uses assets or sources of
funds that create a fixed burden for the company. Rizkianingsih (2012) and Widayuni (2014)
which states that companies that have debt will influence their decisions in improving social
performance reporting in a sharia manner. This is supported by Rizfani and Lubis (2018) stating
that companies that have high interest debt, management's ability to invest in social responsibility
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report programs is very limited. Hasil penelitian ini sejalan dengan hasil penelitian Rizkianingsih
(2012), Widayuni (2014), dan Pratama et al (2018). which states that leverage negatively affects
ISRs. However, it is different from the results of the study Kariza (2018), Hidayati (2015) and
Hasanah et al. (2018) which states that leverage has no effect on ISR disclosure.
CONCLUSION
Based on the results of the research and discussion that have been presented, several
conclusions can be concluded, namely: a) Company size, board of director size, profitability, and
leverage together affect Islamic Social Reporting (ISR) at Sharia Commercial Banks in 2016-
2019. b) Company size negatively affects Islamic Social Reporting (ISR) at Sharia Commercial
Banks in 2016-2019. c) The size of the board of directors has a positive effect on Islamic Social
Reporting (ISR) at Sharia Commercial Banks in 2016-2019. d) Profitability negatively affects
Islamic Social Reporting (ISR) at Sharia Commercial Banks in 2016-2019. e) Leverage
negatively affects Islamic Social Reporting (ISR) at Sharia Commercial Banks in 2016-2019.
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