Shariah governance effects on cash holdings under sustainability commitments: Indonesian Islamic banks

Type of the article: Research ArticleAbstractThis study investigates the link between sustainability commitment and cash holdings and assesses the relationship between board meetings (BM), industry knowledge (IK), and Shariah Supervisory Boards (SSBs) and sustainability commitment in Indonesian Islamic banks. The analysis employs entity-year fixed effects regressions and conducts robustness checks on an unbalanced panel covering 15 banks from 2017 to 2023. Sustainability commitment is proxied by a disclosure index aligned with national and global guidelines, while cash holdings equal cash and equivalents scaled by total assets.Results from the main specification indicate that stronger sustainability commitment is associated with higher cash holdings (p < 0.05), consistent with precautionary motives under ESG execution and disclosure scrutiny. Board activity, proxied by meeting frequency, is positively related to sustainability commitment (p < 0.01), and SSB size also shows a significant association (p < 0.01). Leadership competency is not a significant factor in the sustainability liquidity link. While standard controls are included, bank age is negatively associated with cash holdings (p < 0.01).These findings suggest that banks with stronger sustainability commitment maintain larger liquidity buffers, and that SSB oversight and active boards help embed sustainability within prudential liquidity management. The evidence informs regulators and managers seeking to coordinate Shariah governance, sustainability mandates, and cautious liquidity practices in emerging markets.AcknowledgmentCurrently, the manuscript is under the support of The Academic Research Grant (ALG), which is an Internal Research Grant from Unpad (Padjadjaran University) for the year 2023 with reference number 1549/UN6.3.1/PT.00/2023.