Corporate Governance System and Its Role in Activating Islamic Bank’s Management and Supervision

Abstract

This paper examines corporate governance (CG) characteristics and relates them to earnings management (EM) behaviours in the context of a large emerging sector, Islamic banking industry. Main differences are found with regard to philosophical aspects, including objectives of the bank, natures of contract involved, key players in theCG practice as well as the relationships between the players. We verified that these aspects provide strong justification for an additional layer in the CG of an Islamic bank being the Shari'ah Supervisory Board (SSB). The mechanism and tools for the effective implementation of CG are relatively the same as the conventional system.