Enhancing performance: minimizing risk in Islamic banks in Indonesia

Roziq, Ahmad; Ahmad, Zakiyyah Ilma Article Enhancing performance: minimizing risk in Islamic banks in Indonesia Cogent Business & Management Provided in Cooperation with: Taylor & Francis Group Suggested Citation: Roziq, Ahmad; Ahmad, Zakiyyah Ilma (2024) : Enhancing performance: minimizing risk in Islamic banks in Indonesia, Cogent Business & Management, ISSN 2331-1975, Taylor & Francis, Abingdon, Vol. 11, Iss. 1, pp. 1-16, https://doi.org/10.1080/23311975.2023.2294519 This Version is available at: https://hdl.handle.net/10419/325934 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ Cogent Business & Management ISSN: 2331-1975 (Online) Journal homepage: www.tandfonline.com/journals/oabm20 Enhancing performance: minimizing risk in Islamic banks in Indonesia Ahmad Roziq & Zakiyyah Ilma Ahmad To cite this article: Ahmad Roziq & Zakiyyah Ilma Ahmad (2024) Enhancing performance: minimizing risk in Islamic banks in Indonesia, Cogent Business & Management, 11:1, 2294519, DOI: 10.1080/23311975.2023.2294519 To link to this article: https://doi.org/10.1080/23311975.2023.2294519 © 2024 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group Published online: 22 Feb 2024. Submit your article to this journal Article views: 2371 View related articles View Crossmark data Full Terms & Conditions of access and use can be found at https://www.tandfonline.com/action/journalInformation?journalCode=oabm20 ACCOUNTING, CORPORATE GOVERNANCE & BUSINESS ETHICS | RESEARCH ARTIClE Cogent Business & ManageMent 2024, VoL. 11, no. 1, 2294519 Enhancing performance: minimizing risk in Islamic banks in Indonesia Ahmad Roziqa and Zakiyyah Ilma Ahmadb auniversity of Jember, Jember, indonesia; bsties Babussalam Jombang, Jombang, indonesia ABSTRACT This study explores whether risk mediates the relationship between good corporate governance (GCG), Sharia capital structure, and Sharia financing structure on the financial performance of Islamic banks in Indonesia. The research utilized purposive sampling, selecting a sample of nine banks from 2014 to 2021. The data analysis technique employed a licensed Smart Partial least Squares (PlS) program. The initial findings reveal that GCG significantly reduces risk but does not directly impact financial performance. Second, the composition of Sharia capital structures has a limited influence on risk but significantly hinders financial performance. Third, the Sharia financing structure significantly and negatively impacts risk and financial performance. Fourth, risk has a significant negative effect on financial performance. Fifth, Islamic bank risk mediates the relationship between Sharia financing structure and financial performance. It also mediates the relationship between GCG and financial performance but does not mediate the relationship between Sharia capital structure and financial performance. These results suggest that to enhance financial performance and minimize risks, the management of Islamic banks should prioritize improving financing practices and implementing GCG measures. The findings of this study can be applied by Islamic banks worldwide. The study identifies nine types of Islamic bank risks that can be employed to assess the risk profile of Islamic banks and even to create a comprehensive risk profile. This multidimensional framework illuminates the intricate interplay between these variables within Islamic banks, offering valuable insights for researchers and practitioners in this field. IMPACT STATEMENT We believe that our research significantly contributes to the public interest and has far-reaching societal impact. This findings can be leveraged by academics, researchers, and practitioners to build upon and refine existing theories and practices. 1. Introduction The development of Islamic banks in Indonesia serves as a benchmark for the success of the Sharia economy. One notable indicator of the success of Islamic banks is reflected in their financial performance. Financial performance analysis assesses how much a company appropriately adheres to financial implementation rules. Munawir (2010) explains that financial performance is a valuable foundation for evaluating a company’s financial condition, conducted through an analysis of financial ratios. Both management and stakeholders require insights from financial performance measurements to gauge the company’s condition and success in executing its operational activities. Keown (2001) explains that financial ratios crucial for identifying the financial performance of banks include liquidity ratios, profitability ratios, solvency ratios, business efficiency ratios, debt ratios, and market value ratios. According to Sofyan (2002), the most influential and significant indicator for evaluating © 2024 the author(s). Published by informa uK Limited, trading as taylor & Francis group CONTACT ahmad Roziq ahmadroziq[email protected] university of Jember, Jember, indonesia. https://doi.org/10.1080/23311975.2023.2294519 this is an open access article distributed under the terms of the Creative Commons attribution License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. the terms on which this article has been published allow the posting of the accepted Manuscript in a repository by the author(s) or with their consent. ARTICLE HISTORY Received 14 September 2023 Revised 7 December 2023 Accepted 8 December 2023 KEYWORDS Sharia capital structure; Sharia financing structure; good corporate governance; risk; financial performance REVIEWING EDITOR Collins Ntim, University of Southampton, United Kingdom of Great Britain and Northern Ireland JEL CLASSIFICATION M41; M48; G32 2 A. ROZIQ AND Z. IlMA AHMAD all activities in the banking industry is profitability indicators, which can be measured using return on equity (ROE) and return on asset (ROA) data. Other ratio indicators determining financial performance in Islamic banks include the capital adequacy ratio (CAR), non-performing financing (NPF), financing to deposit ratio (FDR), operating expenses to operating income, and net operating margin (NOM). Darmawi (2011) explains that the factors influencing financial performance, as used to assess bank health, include capital, asset quality, management, earnings, liquidity, and sensitivity to the market (CAMEl). Regulatory guidelines about assessing banks’ soundness, as outlined in Circular letter No.9/24/ DPbS concerning the system for evaluating the soundness level of Islamic Banks based on Sharia Principles, allow for evaluation based on the CAMEl factors. The assessment of the soundness level of Islamic banks and Sharia business units is governed by Financial Services Authority Regulation Number 8/POJK.03//2014 This regulation stipulates that Islamic banks can undergo individual health-level assessments, including risk profile, good corporate governance, earnings (profitability), and capital (RGEC). 2. Background In the regulations governing capital structure and financing structure, an integral aspect influencing corporate governance is delineated by Bank Indonesia in PBI No. 11/33/PBI/2009 (Bank Indonesia, 2009). Bank governance, as outlined in these regulations, is distinguished by its commitment to principles such as accountability, transparency, responsibility, and professionalism, all rooted in a dedication to fairness. Corporate governance holds paramount importance within companies, especially in the context of bank performance. Empirical findings from hypothesis testing substantiate the positive influence of Good Corporate Governance (GCG) on the financial performance of Islamic banks (Bank Indonesia, 2009). A study by ledi and Xemalordzo (2023) revealed that sound corporate governance practices augment both the corporate image and performance of firms. Al Kayed (2014) elucidates that capital factors are represented by capital structure, which pertains to the selection of funding comprising equity or liabilities, exerting a significant impact on financial performance. According to agency theory, implementing capital structure mitigates conflicts among stakeholders, particularly between investors and managers. The study validates findings from larasati (2016), indicating that elevated capital ratios lead to a deterioration in performance. This is attributed to the higher required return on shares, resulting in an escalation of the cost of equity capital, consequently leading to a reduction in company profits and, therefore, a decline in overall company performance. The research findings by Dahlia (2021) indicate that financing and liquidity risks do not significantly impact Islamic banks’ financial performance. However, it is observed that simulated and liquidity risks affect the financial performance of Islamic banks. Islamic banks engage in risk management to optimize the trade-off between risk and revenue, aiding in the strategic planning and development of financing in an appropriate and efficient manner. The capital structure theory employing the Modigliani-Miller (MM) approach posits that as the proportion of capital from debt increases, so does the risk faced by the company. However, this theory is predominantly applicable to conventional banks. In contrast, the same principles do not apply to Islamic banks, where a higher capital structure does not translate to higher risk. This is because Islamic banks’ capital is sourced not from debt and owner’s equity but rather from temporary shirka funds (Roziq et al., 2021). Research by Roziq et al. (2021) demonstrates that capital adequacy significantly impacts profitability, indicating that higher available capital leads to increased profits for Islamic banks. Additionally, research by Parasthiwi and Budiasi reveals that credit risk has not been effective in moderating the influence of capital adequacy (CAR) on profitability (ROA). Similarly, Ratri Utami and Utami (2021) research states that problematic financing fails to moderate CAR with ROA. Financing constitutes one of the fund distribution products at Islamic banks, necessitating careful attention to controlling and supervising profit-sharing financing products. Inadequate control and supervision increase the risk of occurrences, thereby affecting the financial performance of Islamic banks. This assertion is supported by Dwi Fazriani and Gusliana Mais (2019) research, which indicates that mudarabah financing, musharaka financing, and murabahah financing positively influence ROA through risk as an intervening variable. Through credit risk, independent commissioners, the board of directors, and managerial ownership influence profitability. In other words, credit risk can serve as an intervening variable for Good Corporate COGENT BUSINESS & MANAGEMENT 3 Governance (GCG). Therefore, this study establishes that the effective implementation of GCG, coupled with sound risk management, has the potential to enhance bank profitability. The handling and managing of existing risks, particularly credit risk, are essential in realizing GCG. Maintaining bank risks within minimal limits is a crucial indicator of the successful implementation of GCG. This assertion is supported by the findings of other studies, which suggest that risk management can function as an intervening variable between GCG and performance (Aryani, 2019). This research aims to address issues about the financial performance of Islamic banks by examining influencing factors, specifically the Islamic capital structure, Islamic financing structure, and GCG. The study incorporates intermediary variables, represented by Islamic bank risk variables, to establish connections between these elements. Efficient and effective implementation of Sharia capital structure, Sharia financing structure, and GCG is expected to impact bank risks, ultimately minimizing losses arising from operational risks. The adept management of risks within Islamic banks is anticipated to indirectly influence financial performance, concluding that Islamic banks are positioned favorably. Researchers conducted this study to analyze the influence of Sharia capital structure, Sharia financing structure, and GCG on financial performance through the lens of risk. This research addresses several factors that influence financial performance: the Sharia capital structure, Sharia financing structure, good corporate governance, and risk. The anticipated benefits of this research are as follows: a. The study aims to enhance academic understanding of the impact of Sharia capital structure, Sharia financing structure, and good corporate governance on financial performance through risk. b. This research can provide insights into the factors influencing financial performance, specifically by examining the effects of Sharia capital structure, Sharia financing structure, and good corporate governance on the financial performance of Islamic banks through Islamic bank risk. c. The findings of this research are expected to offer valuable insights for management decision-making in terms of risk management, thereby influencing the financial performance of Islamic banks. d. This research is intended to serve as a reference for future studies or further research exploring the influences of risk and financial performance from various aspects, particularly in Sharia financial accounting. 3.Theoretical literature review 3.1. Financial performance According to regulations and guidelines, financial performance analysis assesses the extent to which a company adheres to proper and accurate financial management practices. This evaluation comprehensively examines the company’s financial statements and other relevant factors that support the assessment of financial performance. Mutasowifin (2014), emphasized that financial performance analysis determines the degree to which a company has adhered to financial rules. In this context, a regulation issued by the Financial Services Authority, SEOJK No. 05, 2019, delineates financial entities’ Health level Assessment System. Within this framework, profitability factors are analyzed, primarily utilizing the operational efficiency ratio as a key metric and complemented by the monitoring ratio, which includes the return on asset and return on equity ratios. 3.2. Sharia capital structure Capital structure is the combination of a company’s debt and equity that it employs to finance its assets. In Islamic banks, the components of capital structure are derived from three sources: liabilities, temporary shirka funds, and equity (Wahyulaili etal., 2018). Statement of Financial Accounting Standards number 105 (2017) concerning Mudarabah Accounting and number 106 (2017) managing musharaka Accounting, defines temporary shirka fund as funds received as investments within a specified period from individuals and other parties where the bank has the right to manage and invest the funds. The 4 A. ROZIQ AND Z. IlMA AHMAD distribution of investment returns is based on a pre-agreed arrangement. Examples of temporary shirka funds include receipts from investment funds such as mudarabah muthlaqa, mudarabah muqayyada, musharaka, and other similar accounts. The relationship between the bank and the fund owner is a partnership based on the contract of mudarabah muthlaqa, mudarabah muqayyada, or musharaka. 3.3. Sharia financing structure The financing structure illustrates the composition of financing between those derived from fixed-profit buying and selling patterns, variable profit-sharing patterns, and rental patterns. These patterns have become integral financing products within Islamic banks. This financing structure significantly impacts the profits generated, thereby influencing the bank’s financial performance (Muhammad, 2021). In fund allocation, Islamic banks can offer various forms of financing, including mudarabah and musharaka financing (with a profit-sharing pattern), murabahah and salam (involving buying and selling patterns), istishna (similar to salam), and ijarah (involving operational and financial lease patterns). 3.4. Good corporate governance Bank Indonesia regulates the implementation of Corporate Governance (GCG) in Islamic banks through regulation no. 11/33/PBI/2009 (Bank Indonesia, 2009), which delineates the standards for GCG in Islamic banks and Sharia business units. Article 2 of this regulation mandates that all Islamic banks integrate GCG principles into every facet of their business activities across all organizational levels. GCG serves as a framework of laws, regulations, and rules that must be diligently followed, promoting the efficient utilization of company resources and generating sustainable, long-term economic value for both shareholders and society. Islamic banks, as part of their commitment to GCG, regularly conduct self-assessments to implement the five core principles of GCG. These principles are thoroughly evaluated through eleven assessment factors, as outlined in the Circular letter issued by the Financial Services Authority under no. 10/ SEOJK.03/2014 (Financial Services Authority (OJK), 2014) regarding assessing the Health level of Islamic banks and Sharia Business Units. These factors are categorized into five distinct groups. The hierarchy of these ranking categories signifies the degree to which GCG principles are effectively applied in practice. 3.5. Risk Risk is essentially the potential for loss arising from a specific event. This concept is governed by the Financial Services Authority Regulation No. 65/POJK.03/2016 (Financial Services Authority (OJK), 2016), which outlines guidelines for Risk Management in Islamic banks and Sharia Business Units. The Financial Services Authority Regulation further strengthens this regulatory framework: No. 8/POJK.03/2014 2014) outlines protocols for assessing the health level of banks and Sharia Business Units. According to these regulations, banks are required to manage ten distinct types of risks, namely market, credit, operational, liquidity, legal, reputation, compliance, rate of return, strategy, and equity investment risks. 4. Empirical literature review and hypotheses development 4.1. Good corporate governance and financial performance The relationship between good corporate governance and financial performance is empirically supported by the research conducted by Ekaningsih and Afkarina (2021). Their study demonstrates that the implementation of better Corporate Governance (GCG) leads to an improvement in bank profitability, as measured by Return on Assets (ROA). Additionally, the research conducted by ledi and Xemalordzo (2023) reveals that good corporate governance practices not only enhance the corporate image but also contribute to the overall performance of firms. Hypothesis 1: Good corporate governance has a significant effect on financial performance. COGENT BUSINESS & MANAGEMENT 5 4.2. Good corporate governance and risk The relationship between good corporate governance and risk is empirically supported by the findings of research conducted by Komang Hevy (2019). The study indicates that the impact of good corporate governance, represented by independent commissioners, has a mitigating effect on credit risk. This is attributed to the supervision carried out by independent commissioners, serving as a crucial indicator in adhering to the principle of prudence (prudential banking practices), thereby minimizing the credit risk faced. Consistent with the research conducted by Elamer et al. (2020), the Sharia supervisory board, block ownership, board independence, and country-level governance quality exhibit statistically significant and positive associations with operational risk disclosures. Furthermore, Chouaibi et al. (2023) revealed that governance performance influences financial risk disclosure. Hypothesis 2: Good corporate governance has a significant effect on risk. 4.3. Risk and financial performance The relationship between risk and financial performance is empirically reinforced by the research conducted by Almunawwaroh and Marliana (2018). Their findings indicate that Non-Performing loans (NPF) negatively affect profitability. This relationship is further substantiated by the results of Marlina and Diana (2021)’s research, which demonstrates that an elevated risk of problematic financing (NPF) leads to a reduction in profitability (measured by Return on Assets, ROA). Additionally, the study conducted by Kwashie et al. (2022) reveals that non-performing loans harm financial performance. Hypothesis 3: Risk has a significant effect on financial performance. 4.4. Sharia capital structure and financial performance The relationship between Sharia capital structure and financial performance is empirically reinforced by the results of research conducted by Mardhatillah et al. (2020). This study demonstrates the impact of capital structure, represented by the debt-to-asset ratio, on financial performance proxied by the net profit margin. Moreover, the research conducted by Rehman et al. (2023) reveals that structural capital efficiency is significantly associated with earnings per share, return on assets, and return on equity. Hypothesis 4: Sharia capital structure has a significant effect on financial performance. 4.5. Sharia capital structure and risk The relationship between Sharia capital structure and risk is empirically supported by the results of research conducted by Fadlurrahman etal. (2021). Their study asserts that capital (CAR) significantly influences non-performing financing (NPF). Increased capital value is associated with decreased problematic financing for business units (BUS), and vice versa. This finding is consistent with the research conducted by Rahayu etal. (2022), which indicates that each time the capital adequacy ratio increases, financing in arrears also increases. Additionally, the study conducted by Fatouh et al. (2023) reveals that an increase in banks’ leverage ratio does not result in an increase in asset risk. Hypothesis 5: Sharia capital structure has a significant effect on risk. 4.6. Sharia financing structure and financial performance The relationship between Sharia financing structure and financial performance is empirically supported by the research conducted by Indah Prihandini and Safira (2019). This study demonstrates that as 6 A. ROZIQ AND Z. IlMA AHMAD mudarabah financing, a form of Sharia financing, increases, the profitability of BPRS, proxied by Return on Assets (ROA), also increases. Consistent with the research conducted by Agustin and Bustaman (2020), successful implementation of mudarabah financing using a profit-sharing system by customers can lead to increased profits. Furthermore, the study conducted by Kulmie etal. (2023) concludes that both murabahah and mudarabah are crucial for the performance and profitability of Islamic banks. Hypothesis 6: Sharia financing structure has a significant effect on financial performance. 4.7. Sharia financing structure and risk The relationship between Sharia financing structure and risk is empirically supported by the research conducted by Dwi Fazriani and Gusliana Mais (2019). Their study indicates that increased mudarabah financing provided to customers reduces the risk of bad credit or non-performing financing (NPF). In contrast, musharaka financing positively impacts NPF, meaning that a higher level of musharaka financing provided by banks to their customers is associated with an increased risk of bad credit. Furthermore, the study conducted by Al Rahahleh et al. (2019) concludes that bank capital and financing expansion significantly negatively impact the credit risk level of Islamic Banks (IBs) in Malaysia. Hypothesis 7: Sharia financing structure has a significant effect on risk. 4.8. Research conceptual framework Based on the explanation of the relationship between these variables, the research hypothesis can be described in a concise research framework regarding the influence of Sharia capital structure, Sharia financing structure, and good corporate governance on financial performance through Islamic bank risk as illustrated in Figure 1. 5. Methodology 5.1. Research type This research adopts a quantitative method with an explanatory approach, specifically aimed at elucidating the relationships between research variables by testing previously formulated hypotheses. Path analysis is employed to examine whether the hypotheses align with the results of data analysis. Figure 1. Research conceptual framework. COGENT BUSINESS & MANAGEMENT 7 5.2. Population, sample, and method of sampling The population in this research comprises all 12 Islamic banks in Indonesia registered with the Financial Services Authority. The sampling technique used is purposive sampling based on specific criteria, which include: a. Sharia Banks registered with the Financial Services Authority b. Islamic banks with consecutively published annual financial reports from 2014 to 2021. c. Published annual financial reports containing the required data related to research variables. Utilizing the purposive sampling method, three Islamic banks did not meet the research sample criteria. As a result, the banks that fulfilled the sample criteria amounted to nine Islamic banks. The sampling covered eight years, resulting in a total of 72 observation data points. 5.3. Data The type of data utilized in this research is secondary data, specifically financial data obtained from annual financial reports related to the variables under investigation. The data collection technique employed is documentation, which involves exploring secondary data sourced from documents and financial reports. The necessary documents or reports for this research are financial reports published on the official websites of each of the nine Islamic banks, encompassing annual report data from 2014 to 2021. 5.4. Variables Table 1 summarizes the variable names, types (notated as X for independent variables, Z for intervening variables, and Y for dependent variables), indicators, measurements, and scales. Table 1. Variables, indicators, measurements and scales. Variables indicators Measurements scales sharia Capital structure (X1 : independent Variable - 1) 1 Liability (total Liability/ total asset) × 100% Ratio 2temporary shirka Fund (total temporary shirka Fund / total asset) × 100% Ratio 3 equity (total equity/ total asset) × 100% Ratio sharia Financing structure (X2 : independent Variable-2) 1Murabahah Financing (total Murabahah Financing / total Financing) × 100% Ratio 2Mudarabah Financing (total Mudarabah Financing / total Financing) × 100% 3Musharaka Financing (total Financing Musharaka / total Financing) × 100% good Corporate governance (X3 : independent Variable - 3) 1self assessment Ranking 1–5 interval 2Members of the Board of Commissioners ∑ Members of the Board of Commissioners Ratio 3Board of Commissioners Meeting ∑ Board of Commissioners Meeting Ratio 4Member of the Board of Directors ∑ Member of the Board of Directors Ratio 5Board of Directors Meeting ∑ Board of Directors Meeting Ratio 6Member of the sharia supervisory Board ∑ Member of the sharia supervisory Board Ratio 7sharia supervisory Board Meeting ∑ sharia supervisory Board Meeting Ratio Risk (Z : intervening Variable) 1Credit Risk Ranking 1–5 interval 2Market Risk Ranking 1–5 interval 3Liquidity Risk Ranking 1–5 interval 4operational Risk Ranking 1–5 interval 5Law Risk Ranking 1–5 interval 6Reputation Risk Ranking 1–5 interval 7strategic Risk Ranking 1–5 interval 8Compliance Risk Ranking 1–5 interval 9Rate of Return Risk Ranking 1–5 interval 10 equity investment Risk Ranking 1–5 interval Financial Performance (Y : Dependent Variable) 1Return on asset Roa Ratio Ratio 2Return on equity Roe Ratio Ratio 3operational efficiency Ratio Reo Ratio Ratio 14 A. ROZIQ AND Z. IlMA AHMAD performance, leading to anticipated negative effects. Furthermore, the study indicates that GCG is not expected to influence financial performance directly. Moreover, the research explores the interactions between these variables and risk, suggesting that Sharia capital structure is unlikely to have a direct positive influence on risk. In contrast, Sharia financing structure and GCG are expected to negatively affect risk directly. The study also anticipates that risk will directly and negatively affect financial performance. The hypotheses propose that risk may serve as a mediator, positively influencing the relationship between Sharia financing structure, GCG, and financial performance. This multidimensional framework sheds light on the complex interplay among these variables within Islamic banks, providing valuable insights for researchers and practitioners in this field. 7.1. Implication for practice This multidimensional framework illuminates the intricate interplay among these variables within Islamic banks, offering valuable insights for practitioners in this field. Islamic bank management is tasked with optimizing the utilization of acquired capital funds, particularly in the distribution of funds for financing, to effectively manage, minimize, and control risks, thereby enhancing the financial performance of Islamic banks. The findings of this study have global applicability for Islamic banks. The study identifies nine types of Islamic bank risks that can be utilized to assess Islamic banks’ risk profiles and even formulate a comprehensive risk profile. 7.2. Limitations and directions for future research This research does not encompass all Islamic banks in Indonesia, as they fail to meet the criteria for inclusion as research samples. Additionally, Sharia business units within conventional banks that were not included as sample criteria are excluded. This multidimensional framework illuminates the intricate interplay among these variables within Islamic banks, offering valuable insights to researchers in this field. Subsequently, researchers can explore whether other variables may mediate the relationships within Islamic capital structures. Furthermore, researchers can incorporate additional variables, such as Sharia (Islamic) good corporate governance and Sharia maqhasid performance. To enhance the study, it is recommended to include more data from Islamic banks in other countries. Acknowledgments We are indebted to the University of Jember and STIES Babussalam for providing the support needed for this research. We appreciate the reviews and comments made by reviewers on this paper. Authors’ contributions Ahmad Roziq: Creation of ideas, hypotheses, results, discussions, article reports and revision. Zakiyyah Ilma Ahmad: collecting, processing, running data in SmartPlS and revision. Disclosure statement The research has no conflicts of interest to declare. Any errors are our responsibility. About the authors Ahmad Roziq competes in financial accounting, Islamic accounting, and Islamic banking. He is a lecturer and researcher at the University of Jember and an Internal Auditor at BAZNAS in Jember, Indonesia. Zakiyyah Ilma Ahmad specializes in Islamic accounting, economics, and banking. She is a lecturer at ST IES Babussalam Jombang, Indonesia. COGENT BUSINESS & MANAGEMENT 15 Tool for data analysis The data analysis technique employed in this study involves using a licensed Smart Partial least Squares (PlS) program. Data availability The data supporting the findings of this study are available from the corresponding author and second author upon reasonable request. Funding This research received no specific grant from any funding agency in the public, commercial, not-for-profit, or higher education sectors. ORCID Ahmad Roziq http://orcid.org/0000-0001-8151-1360 Zakiyyah Ilma Ahmad http://orcid.org/0009-0004-0806-863X References Agustin, H., & Bustaman, N. (2020). The effect of Bank Ownership Structure and Financing Income on the Profitability of Islamic Commercial Banks in Indonesia. Journal of Tabarru : Islamic Banking and Finance, 3(2), 86-94. Al Kayed, l. (2014). The relationship between capital structure and performance of Islamic banks. 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