The relationship between agency theory, stakeholder theory and Shariah supervisory board in Islamic banking

Abstract

Purpose In relation to the critical problem, this paper aims to present an understanding of the agency theory and the stakeholder theory from the perspective of the Islamic principles. Indeed, a thorough examination of the theoretical background explaining corporate governance from the Islamic perspective is necessary to conduct research analysing corporate governance in Islamic banks. Design/methodology/approach The authors followed a critical review discussion; this method takes into consideration presenting important theories and comparing those theories with Islamic perspective. Findings The authors presented important arguments on the difference between ordinary theories to explaining corporate governance and Islamic perspective. The paper browsed into whether the Shariah Supervisory Board is a fit with the agency theory by explaining the agency theory and how it differs from the Islamic banking concepts. The paper involved an analytical review on stakeholder theory and presented a critique and the rationale as to why there is ample room for the Shariah Supervisory Board to be considered a fit with the stakeholder theory, as the Shariah Supervisory Board is an independent body influencing the firm. Originality/value The paper is of important value to those conducting research in the area of governance in Islamic banks; they may find it beneficial in terms of underlining theory building their research framework.