Guiding the narrative: the influence of managerial discretion on Shariah governance disclosure in takaful companies

Purpose This study aims to assess the extent of adherence among takaful companies to the guidelines issued by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) and Islamic Financial Services Board (IFSB) in relation to Shariah governance disclosure (SGD). This study also examines the relationships between managerial discretion forces and the SGD level. Design/methodology/approach The authors created a comprehensive SGD index based on AAOIFI, IFSB and past studies. The research hypotheses were assessed using regression analysis for a sample of takaful companies in the Gulf Cooperation Council (GCC) and South East Asia (SEA) from 2018 to 2022. Findings The average SGD levels among takaful companies are relatively low, and there appears to be a considerable variation between the companies. The findings further indicate that five variables representing managerial discretion forces, namely, firm profitability, chief executive officer (CEO) tenure, CEO experience, culture and the rule of law, significantly affect SGD levels in takaful companies. Research limitations/implications This study relied mainly on the published annual reports of the sample companies to gauge the extent of SGD. Moreover, the GCC and SEA are the only regions included in the current investigation. Practical implications The low level of SGD indicates a dire need to enhance the disclosure in takaful companies. The empirical evidence from this study could be used to assess the need for different rules or requirements for takaful companies based on their characteristics. This study also offers practical recommendations on balancing managerial discretion with the need for transparency and accountability. Social implications The circumstances where managers may act unethically are highlighted in this study, as evidenced by the decreasing levels of SGD. The findings that managerial discretion significantly influenced the level of SGD also imply that such disclosure may not be solely driven by genuine accountability and the ethical spirit of Shariah principles. Conversely, managers may disclose more information to project legitimacy and satisfy formal expectations, thus prioritising form over substance in their disclosure practices. The ethical standards in corporate disclosure should be enhanced to promote corporate social accountability and transparency. Originality/value This paper explores the under-investigated takaful sector and to the best of the authors’ knowledge, is believed to be among the first to test the managerial discretion hypothesis in relation to corporate disclosure practices in takaful companies. This also contributes directly to Sustainable Development Goal 16 in promoting ethical governance, accountability and transparency in Islamic Financial Institutions.