Corporate social responsibility disclosure and Islamic bank stability in GCC countries: Do governance practices matter?

The research on corporate social responsibility (CSR) has taken on particular importance in the current banking literature. This literature focused on the direct effect of CSR on bank performance. However, this study fills this gap by examining the relationship between CSR and Islamic bank stability (IBS). More specifically, it examined, on the one hand, the non-linear relationship between CSR and IBS and, on the other hand, the moderating effect of governance practices (Sharia supervisory board, governance structure, institutional quality) on CSR-IBS nexus. To do this, we selected a group of 43 Islamic banks operated in Gulf Cooperation Council countries over a period from 2012 to 2020. The results obtained using the System GMM method showed that there is a U-shaped relationship between CSR and IBS. Furthermore, they revealed that governance practices have a moderating effect on the relationship between CSR and IBS. Our findings indicate that the combination of corporate social responsibility and governance practices enhances IBS, but a bank risk could occur due to weak governance practices. These findings are likely to be useful for managers, policymakers, and stakeholders. Managers should prioritize CSR aligned with core objectives, enhancing reputation and stability, while a balanced approach is recommended to avoid financial risks. GCC policymakers should encourage CSR in line with national development goals, incorporating responsible practice indicators and appropriate governance standards to ensure stable operations. Stakeholders should consider a moderate level of CSR to enhance trust, returns, industry resilience and employee satisfaction, adapting the implications for sustainable banking stability.