Sharia governance and organizational performance in zakat management organization: evidence from Indonesia

Abstract

Purpose This paper aims to investigate the impact of sharia governance on organizational performance in zakat management institutions in Indonesia over the period 2017–2021. Design/methodology/approach This study examined 33 zakat management organizations in Indonesia from 2017 through 2021 for 151 observations. Gross allocation ratio and growth of ZIS collection are used as organizational performance measures. The independent variables in this study are board of director size, educational background of the board of directors, sharia supervisory board size, sharia supervisory expertise, supervisory size and management size. Also, the study uses size, age and audit opinion as control variables to help measure the relationship between sharia governance and organizational performance. Findings This study shows that the board of directors and supervisory size positively and significantly affect organizational performance. Then, the educational background of board of directors has a negative and significant effect on organizational performance. In Model 1, sharia supervisory board size has a positive and significant effect on organizational performance, but in Model 2, sharia supervisory board size does not. Meanwhile, sharia supervisory expertise and management board size do not affect organizational performance. Practical implications The findings in this study illustrate the importance of transparency in the zakat management organization. Transparency helps minimize conflicts of interest and information asymmetry in the zakat management organization. In addition, sharia governance mechanism helps regulators and top management to make effective policies to improve and enhance organizational performance. Social implications Sharia governance is essential for zakat management organizations to increase accountability, credibility and public trust and support the practice of zakat management organizations. Originality/value This study discusses sharia governance and organizational performance in socioreligious organizations, especially zakat management organizations, which are still rarely carried out. Thus, this study broadens the insights of sharia governance and highlights the importance of performance appraisal in zakat management organizations.