The role of marketing actions with a social dimension: appeals to the institutional environment, Factor influences selection of Islamic banking: a study on Malaysian preferences, An empirical investigation into the role, independence and effectiveness of Shari’ah boards in the Malaysian Islamic banking industry, Performance implications of nonmarket strategy in China, Guiding Principles on Shari'ah Governance System for Institutions offering Islamic Financial Services, Stakeholders model of governance in Islamic economic system, Theory of the firm: managerial behaviour, agency costs, and ownership structure, Organizational and economic explanations of audit committee oversight, Critical insights into contemporary Islamic accounting, Critical Muslim intellectuals’ discourse and the issue of ‘interest’ (rib¯a): implications for Islamic accounting and banking, Islam, nature and accounting: Islamic principles and the nation of accounting for the environment, Governance mechanisms and efficiency: evidence from an alternative insurance (Takaful) market, Journal of International Financial Markets, Institutions and Money, The nature and rational of a conceptual framework for financial reporting by Islamic banks, International accounting harmonization, banking regulation, and Islamic banks, Corporate governance reforms in Malaysia: insights from institutional theory’, world review of entrepreneurship, Islamic banking and finance: on its way to globalization, The effect of corporate governance elements on corporate social responsibility (CSR) disclosure: an empirical evidence from listed companies at KSE Pakistan, International Journal of Financial Studies, Corporate social responsibility and financial performance in Islamic banks, Journal of Economic Behavior and Organization, Banking behaviour of Islamic bank customers perspectives and implications, Institutionalized organizations: formal structure as myth and ceremony, The New Institutionalism in Organizational Analysis, An analysis of linkage between economic value added and corporate social responsibility, Conceptualizing change in the institutional diversity of US colleges and universities, Using institutional theory to reframe research on academic drift, Shariah boards and the corporate governance of Islamic banks in the United Kingdom, Journal of Islamic Economics Banking and Finance, From knowledge to wisdom: the case of corporate governance in Islamic banking, Toward a comprehensive theoretical framework for Shariah governance in Islamic financial institutions, The collective strategy framework: an application to competing predictions of isomorphism, Strategic responses to institutional processes, Sustainable competitive advantage: combining institutional and resource based views, A conceptual model of service quality and its implications for future research, Suggestions for a sociological approach to the theory of organizations, Management as symbolic action: the creation and maintenance of organizational paradigms, Research in Organizational Behavior, Vol. 28 No. Alam, M.K., Rahman, S.A., Mustafa, H., Shah, S.M. It inquires into how these elements are created, diffused, adopted, and adapted over space and time; and how they fall into decline and disuse. You can join in the discussion by joining the community or logging in here.You can also find out more about Emerald Engage. 20 No. S21-S38. Organizational isomorphism is the main component of institutional theory in which institutions implement similar processes through coercive, mimetic, and normative isomorphism’s as outlined in the earlier work (DiMaggio and Powell, 1983). Rammal, H.G. (2007), “Performance implications of nonmarket strategy in China”, Asia Pacific Journal of Management, Vol. Farrington, J. and Farrington, C. (2005), “Rural accessibility, social inclusion and social justice: towards conceptualization”, Journal of Transport Geography, Vol. This video was created from a demo version, so the sound is terrible. (2007), “Corporate governance reforms in Malaysia: insights from institutional theory’, world review of entrepreneurship”, Management and Sustainable Development, Vol. Meyer, J. and Rowan, B. © 2020, Yusuf Karbhari, Md. 1, pp. (2019b), “An overview of corporate governance models in financial institutions”, International Journal of Management and Sustainability, Vol. What is the best political advice to the political leaders arguing for Brexit? For example, conventional corporate governance emphasizes profit-making and institutional performance, whereas Shariah governance focuses purely on the implementation of Islamic principles in applying a Shariah governance framework. Institutional theory endeavors to outline more essential features of how institutions are shaped, continued, altered and postponed, and contracts with the pressures of Islamic financial institutions on human behavior comprising their practices, i.e. Mallin, C., Farag, H. and Ow-Yong, K. (2014), “Corporate social responsibility and financial performance in Islamic banks”, Journal of Economic Behavior and Organization, Vol. (2017), “Exploring the ‘social failures’ of Islamic banks: a historical dialectics analysis”, Journal of Islamic Accounting and Business Research, Vol. (2008), “An analysis of linkage between economic value added and corporate social responsibility”, Management Decision, Vol. 5, pp. Institutional theory has arguably become a popular and powerful explanatory tool for studying various organisational issues, including those in the context of higher education. related to the study of cultural commons await a careful institutional analysis. Carruthers, B.G. 29 No. Prior literature also postulates that Islamic banks need to improve their image and reputation based on the quality of Shariah compliance as this differentiates them from their conventional counterparts (Belal et al., 2015; Mallin et al., 2014) [3]. 8 No. Lustick himself notes that identifying the inability of institutions to adapt as a symptom of being stuck on a local maxima within a fitness landscape does nothing to solve the problem. Moreover, the Shariah governance structure describes the boards association, formation of various committees along with their members, management and exchange of information amongst them (Zahra and Pearce, 1989). 18 No. The theory helps deliver a structure for recognizing how existing practices and standards amongst similar organizations influence the way that regulation (i.e. 103, pp. Kamla, R. (2009), “Critical insights into contemporary Islamic accounting”, Critical Perspectives on Accounting, Vol. TYPES OF INSTITUTIONAL THEORY Most institutional theories see local actors – whether individuals, organizations, or national states – as affected by institutions built up in much wider environments. We are motivated to consider institutional theory as the leading theory as it best illuminates the operational guidelines and procedures for Islamic financial institutions. (2010), “Islam and CSR: a study of the compatibility between the tenets of Islam and the UN global compact”, Journal of Business Ethics, Vol. 285-300. guidelines, practices and standards way social behavior. 27 No. Ahmad, N. and Haron, S. (2002), “Perceptions of Malaysian corporate customers towards Islamic banking products and services”, International Journal of Islamic Financial Services, Vol. and Zucker, L.G. 1, pp. They are related to different pressures (coercive, normative and mimetic) in their organizational settings and continually employ diverse approaches (“acquiesce,” “compromise,” “avoid,” “defy” and “manipulate”) to reply to these pressures. - Definition & Systems, Quiz & Worksheet - Calculating Future Value, Quiz & Worksheet - Calculating Net Present Value, Quiz & Worksheet - Calculating Depreciation Expense, Quiz & Worksheet - Calculating Interest Expense, Quiz & Worksheet - Calculating Gross Profit Margin, California Sexual Harassment Refresher Course: Supervisors, California Sexual Harassment Refresher Course: Employees. 204-208. Consequently, the aim of the particular observing process of Shariah governance is to confirm compliance among Islamic banks concerning the ideologies of Shariah and to prepare a Shariah report which may play a significant role toward owners, other stakeholders (Grais and Pellegrini, 2006a). Archer, S. and Karim, R.A.A. Learn more in: Social Forces that Influence Health IT Use Behavior of the Elderly 5. All other trademarks and copyrights are the property of their respective owners. https://doi.org/10.1108/PRR-05-2020-0015. • Institutional theory brings in the social context • The boundary of rational choice (about IT) is socially constructed, and if legitimated and taken for granted as a social fact, operates and persists even beneath the level of consciousness – We (and our organizations) act out of … They emphasize that a well-designed Shariah governance framework driven by institutional theory could assist in providing guidelines, strategies and procedures for Islamic banks to better conduct, monitor and control their social, religious and accountability obligations. The seven publications comprising this PhD by publication employ neo-Durkheimian institutional theory (NDIT) to examine the relationship between the concept of culture and accounting practice. 245-265. (1984), Strategic Management: A Stakeholder Approach, Pitman, Boston, MA. Institutional theory provides an account of the growth and structure of the academic and state research sectors, as successful organizations in industrialized nations operate as models far from their original contexts. 367-386. Morphew, C.C. Moreover, Islamic accountability incorporates responsibility towards society at large to eliminate poverty and promote fairness or social justice (Kamla, 2009; Maali et al., 2006). 33 No. Although prior research provides guidance on the rights, powers, ownership, control and the interest of managers, owners, shareholders, stewards and other related parties, nevertheless, deficiencies remain. and Iqbal, Z. 19 No. However, the above studies also do not focus on discussing the theoretical development of the religious institutions’ formation, and organizational Shariah governance structure, system and control. Grassa, R. (2016), “Corporate governance and credit rating in Islamic banks: does Shariah governance matters?”, Journal of Management and Governance, Vol. | 10 Earn Transferable Credit & Get your Degree, Resource Dependency Theory: How External Resources Affect Organizational Behavior, Agency Theory: Relationships of Principals & Agents, Rational Choice Theory: Definition & Principles, Resource-Based Theory: Path to Competitive Advantage, What is Stakeholder Theory? 1, pp. In this lesson, you'll explore institutional theory, including its history and characteristics, particularly with regard to environment and social structure. 1, pp. (1991), “Institutionalized organizations: formal structure as myth and ceremony”, in Powell, W. and DiMaggio, P. (Eds) The New Institutionalism in Organizational Analysis, University of Chicago Press, Chicago, pp. (Abdul-Baki and Uthman, 2017). An organization is not only involved in the structures, procedures and processes for a particular institution but also for numerous institutional structures practicing together to attain a mutual goal such as to stimulate a sound Shariah governance practices and applying them in their practice. Can you recognize some of the institutional isomorphism concepts and related risks? In this context, prior studies on institutional theory have emphasized corporate governance (Yoshikawa et al., 2007; Chakrabarty and Bass, 2014; Morrison, 2014), and on the corporate community development practices of Islamic banks in Bangladesh. Alam, M.K., Miah, M.S., Siddiquii, N. and Hossain, M.I. From a Shariah governance perspective, Bhatti and Bhatti (2010) observed that the corporate governance which is authorized by the religious would inspire the capital development, substitute robust markets, generate incentives to participate in value-maximizing behavior and motivate decision and clearness. board of directors, Shariah supervisory board, regulatory authorities and the state. Morphew, C.C. Consequently, from the stakeholder perspective, Shariah governance plays a role similar to corporate governance that is also used to estimate the compliance of the overall activities to confirm the Shariah principles are upheld. The proper application of this theory may ensure the application of Shariah principles and thereby enhance the legitimacy of its stakeholders. Further, Carruthers (1995) argues that the institutional process is a social and political issue that denotes legitimacy and authority much more than effectiveness alone. The raison detre and modus operandi of Islamic Banks is total religious or “Shariah compliance” (Ahmad and Haron, 2002; Mettawa and AlMossawi, 1998; Rashid et al., 2014; Archer and Karim, 2002). (2012), “An empirical investigation into the role, independence and effectiveness of Shari’ah boards in the Malaysian Islamic banking industry”, PhD Thesis, University of Cardiff. 243-269. and Rahman, M.M. Institutional theory has become popular because of the general and dominant description of guidelines for both individuals and corporations’ actions (Scott, 2004). Khan, M.M. These articles drew on concepts of bounded rationality that are central to behavioral … In this tactic, organizations have a tendency to seek legitimacy over obeying rules and regulations that are developed by the cultures and the organization’s internal structures. Suchman, M.C. Tolbert, P.S. 9 No. Prior studies on Islamic finance provide a limited linkage between organizational theory and the complex Shariah governance framework embraced by Islamic banks worldwide. 25 No. Definition The institutional theory of organizations puts institutions at the core of the analysis of organiza- tions ’design and conduct. 565-596. Karim, R.A.A. Many argue that this template is general enough to accomodate anything that may be called ‘logic’, or at least any logical system based on satisfaction between sentences and models of any kind. In this regard, Islamic banks adopt Shariah principles for controlling their business activities. However, as the concepts and principles prescribed by Islamic faith differ markedly from the systems adopted in traditional corporate governance, there are widespread normative (Islamic spiritual philosophies and values) and critical reviews about the uniqueness of Islamic governance frameworks (Kamla et al., 2006; Choudhury and Hoque, 2006; Abu-Tapanjeh, 2009; Williams and Zinkin, 2010). 3 No. The theory has been broadened in the decades since its introduction, and we will review some of the key concepts in this lesson. 2, pp. Finally, institutional theory enables consideration of the intricate relationship between institutional theory and a Shariah governance framework and provides the reason for the acceptance of Shariah governance as a management tool that is explainable by the concept of organizational isomorphism (DiMaggio and Powell, 1983), and organizational legitimacy (Ashforth and Gibbs, 1990; Scott, 2004). Mythologies are general beliefs about mostly acknowledged rules and which have become intensely rooted in culture and have attained legitimacy (Meyer and Rowan, 1977). 313-328. 100, pp. People who possess high achievement needs are people who always work to excel by particularly avoiding l… Researchers have also focused on the perceptions of legitimacy in primary sociological studies (Parsons, 1956, 1960; Weber, 1978). (1983), “Institutional sources of change in the formal structure of organizations: the diffusion of civil service reform, 1880-1935”, Administrative Science Quarterly, Vol. As researchers, in recent years, have paid attention to institutional theory to illuminate variations in institutional multiplicity (Morphew, 2009; Morphew and Huisman, 2002), the theory does, nevertheless, have several limitations. 11 No. application of institutional theory, it is not a "case study. From the previous studies, it is found that Shariah governance is a vital component of the overall corporate governance structure of the Islamic banking industry, but it has been received little attention in prior literature (Yoshikawa et al., 2007; Chakrabarty and Bass, 2014; Morrison, 2014). Grais, W.M. Besides, Deegan (2002) suggests that if society’s prospects concerning the legitimacy of a government or institution are not changed, then their “agreements” for presence are efficiently withdrawn by culture. 875-906, doi: 10.1007/s10997-015-9322-4. Uniquely to Islam, Muslims and Islamic organizations are accountable to God and are required to comply with a strict ethical code. We did not cover other Islamic finance areas (such as Islamic insurance, Islamic microfinance and Halal industries). Conversely, Islamic banks customers have increased satisfaction levels from the view of Islamic banks products, services and facilities in numerous countries. DiMaggio, P. (1998), “The relevance of organizational theory to the study of religion”, Sacred Companies, Oxford University Press. Institutions limit some forms of action and facilitate others. Institutions can be constraining, superimposing conditions of possibility for mobilization, access, and influence. (2008), “Risk Analysis for Islamic Banks, ”, The World Bank, Publisher Washington, DC. The meaning of institutional theory is a statement on the more in-depth and more flexible characteristic of societal structure (Scott, 1987). 9 No. DiMaggio (1998) focusing on institutional theory and its influence on religious institutions, asserted that institutional theory is relevant to the goals of religious institutions, while conventional business institutions have additional tendency to consider coherent actors and an image centering on the maximization of profit. Obid, S.N.S. Section 2 provides a discussion of our critical review of the literature on the theoretical frameworks and evaluates these in the context of Islamic banks and a Shariah governance framework. Though some folks still disagree about the exact definition of 'institution' when it comes to talking about institutional theory, for the purpose of this lesson, 'institutions' refer to the rules and norms of specific systems in our society, nation, world, etc. 11 No. (2008), “Islamic banking and finance: on its way to globalization”, Managerial Finance, Vol. The concept of institution relies heavily upon category theory concepts, but in a rather elementary way. and Dirsmith, M.W. Explain the main elements of the institutionalist theory of class. 49 No. and Huisman, J. Thus, the countries and institutions can implement particular Shariah governance exercises not only for the enhancement of performance or drive to financial development but also to attain legitimacy in culture (Alam et al., 2020c). Therefore, it appears that Islamic institutions can influence the enhancement of Shariah governance practice in a proper way. Mittal, R.K., Sinha, N. and Singh, A. and Ahmed, H. (2002), Corporate Governance in Islamic Financial Institutions, Islamic Development Bank: Islamic Research and Training Institute. 3 No. 3 No. The authors do not receive any specific research fund for conducting this research. Application of institutional theory on Shariah governance framework. Since 1990s, institutional theory became popular despite its conceptual ambiguities such as institution, institutionalization and institutionalism, and the way macro/micro institutional factors are reconciled. Hassan, A.F.S. 5, pp. 11 No. For instance, institutional theory recommends a “presumed unidirectional coercive effect of laws and regulations” (Morphew and Huisman, 2002) that may enhance or decline institutional multiplicity. and Muhammed, J. Maali, B., Casson, P. and Napier, C. (2006), “Social reporting by islamic banks”, Abacus, Vol. 10 No. 1, pp. and Muneeza, A. Alam, M.K., Tabash, M.I., Thakur, O.A., Sahabuddin, M., Hosen, S. and Hassan, M.F. and Gibbs, B.W. 118-132. This study applied library research to investigate the application of institutional theory in the Shariah governance framework of Islamic banks. 13, JAI Press. Wilson, W. (1889), The State and Federal Governments of the United States, D.C. Heath, Boston. Choose one of the three main class theories discussed in class, Marx, Weber and Durkheim, and compare it to Institutionalist class th. 2, pp. 36-53. 4, pp. The meaning of institutional theory is a statement on the more in-depth and more flexible characteristic of societal structure (Scott, 1987). 23 No. A Shariah Supervisory Board is defined as “an independent body entrusted with the duty of directing, reviewing, and supervising the activities of Islamic Banks for the purpose of Shariah compliance and issuing legal rulings relating to Islamic banking and finance” (AAOIFI, 2005). Sociology 110: Cultural Studies & Diversity in the U.S. CPA Subtest IV - Regulation (REG): Study Guide & Practice, Using Learning Theory in the Early Childhood Classroom, Creating Instructional Environments that Promote Development, Modifying Curriculum for Diverse Learners, The Role of Supervisors in Preventing Sexual Harassment, Distance Learning Considerations for English Language Learner (ELL) Students, Roles & Responsibilities of Teachers in Distance Learning. We justified that institutional theory is more relevant in the application of Shariah governance and why the regulators and industry should more focus on this theory in developing and executing the Shariah governance of Islamic banks. Burgess, J. credit by exam that is accepted by over 1,500 colleges and universities. In the meantime, based on the evidence provided in this study, we propose that a rounded acknowledgment of institutional theory be driven through the Islamic banking industry that to initiate a fresh outlook toward Shariah governance. We recognize the institutional theory to perform a key role in enriching the structural framework of Islamic financial institutions. It was DiMaggio (1998) who expanded institutional theory discourse to religious institutions by concentrating on the concepts of the “procedural,” “figurative understanding” and “cultural legitimacy.” Besides, he claimed that institutional theory is relevant and equivalent to the goals of Islamic institutions while conventional business institutions tend to focus more on coherent factors and an image centering on the maximization of profit [6]. 46 No. (1995), “Managing legitimacy: strategic and institutional approaches”, Academy of Management Review, Vol. 39 No. An error occurred trying to load this video. - Definition & Ethics, What is Feminist Theory? The “acquiesce” approach suggests that institutions receive and obey organizational pressures by altering their particular structures and processes to implement broadly acknowledged practices and processes. Interestingly, Tolbert and Zucker (1983) rejected rationality and highlighted legitimacy instead of competency. 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Business 306: Strategic Human Resources Management page to learn more in: social Forces that influence Health Use... Genc, 2013 ) aim of an Islamic bank is to provide banking Services based the! Still, another can make an effort to “ manipulate ” rules regulations! Studies ( Parsons, T. ( 1960 ), “ governance standards for IFIs ”, sociological... The right School avoid ” the obligation to ensure to organizational pressures by covering their non-performance! Rating in Islamic finance areas there are three main ways through which organizations can achieve consistency the... Motivates individuals to support Islamic banks describing the system researchers grouped by subject, each of is. Practices: an application of this manuscript institutional theory in Shariah governance framework of Islamic banks,! Practice tests, quizzes, and Zucker some forms of action and facilitate others is considered to! 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