IT investment and Islamic banking performance in Indonesia: Do Sukuk issuance and Sariah governance matter?

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IT investment and financial performance are crucial issues for the Islamic banking industry. An Islamic banking (IB) that is established in a technologically advanced setting, employs mostly young and tech-savvy employees, and adheres to Islamic principles in all aspects of its activities, needs to invest in IT. This investment in information technology is essential if they are to remain competitive and achieve solid financial performance. This study aims to investigate the effect of IT investment on Islamic banking performance in Indonesia. The study used data of 14 Islamic banks in Indonesia, from 2012 to 2021. By employing panel regression analysis, the study revealed that IT investment has a significant impact on Islamic banking performance, indicated by ATM and Expenses for Human Resources (BG), which has the coefficient 1.75e-07 (Alpha 0.060) and 4.73e-14 (Alpha 1%), respectively. The study also documented a significant relationship between IT investment and IB performance, caused by Sukuk issuance and the Shariah supervisory board. Sukuk issuance has a negative impact on banking performance in relation to IT investment, while shariah governance (board of directors and shariah supervisory board) has a positive impact. Hence, it is also important for an Islamic banking to minimize the use of Sukuk, which until now was still categorized as debt, and to maximize the role of good governance to back up IT spending.

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    • Figure 1. Firm’s objective from the Islamic perspective
    • Table 1. Sample used in the study
    • Table 2. Definitions of variables
    • Table 3. Descriptive statistics
    • Table 4. Correlation matrix
    • Table 5. Regression results
    • Table 6. Moderated regression analysis results
    • Table A1. Regression Result for software investment
    • Table A2. Regression Result for total expenses for human resources (BG)
    • Conceptualization
      Jaenal Effendi, Abdul Qoyum, Leo Indra Wardhana, Hassanudin Mohd Thas Thaker
    • Data curation
      Jaenal Effendi, Abdul Qoyum, Leo Indra Wardhana, Hassanudin Mohd Thas Thaker
    • Formal Analysis
      Jaenal Effendi, Abdul Qoyum, Leo Indra Wardhana, Hassanudin Mohd Thas Thaker
    • Funding acquisition
      Jaenal Effendi, Abdul Qoyum, Leo Indra Wardhana, Hassanudin Mohd Thas Thaker
    • Investigation
      Jaenal Effendi, Abdul Qoyum, Leo Indra Wardhana, Hassanudin Mohd Thas Thaker
    • Methodology
      Jaenal Effendi, Abdul Qoyum, Leo Indra Wardhana, Hassanudin Mohd Thas Thaker
    • Project administration
      Jaenal Effendi, Abdul Qoyum, Leo Indra Wardhana, Hassanudin Mohd Thas Thaker
    • Resources
      Jaenal Effendi, Abdul Qoyum, Leo Indra Wardhana, Hassanudin Mohd Thas Thaker
    • Software
      Jaenal Effendi, Abdul Qoyum, Leo Indra Wardhana, Hassanudin Mohd Thas Thaker
    • Supervision
      Jaenal Effendi, Abdul Qoyum, Leo Indra Wardhana, Hassanudin Mohd Thas Thaker
    • Validation
      Jaenal Effendi, Abdul Qoyum, Leo Indra Wardhana, Hassanudin Mohd Thas Thaker
    • Visualization
      Jaenal Effendi, Abdul Qoyum, Leo Indra Wardhana, Hassanudin Mohd Thas Thaker
    • Writing – original draft
      Jaenal Effendi, Abdul Qoyum, Leo Indra Wardhana, Hassanudin Mohd Thas Thaker
    • Writing – review & editing
      Jaenal Effendi, Abdul Qoyum, Leo Indra Wardhana, Hassanudin Mohd Thas Thaker