<![CDATA[This study analyzes the effect of profit sharing ratio, equitable distribution ratio, and directors-employees welfare ratio on the financial performance of Islamic banks in Indonesia and the Gulf Cooperation Council (GCC) countries over the period 2017–2023. Using a quantitative approach with panel data from 13 Islamic banks (91 bank-year observations), this study employed the two-step system Generalized Method of Moments (GMM) estimator to address endogeneity and unobserved bank-specific heterogeneity. The results indicate that the profit sharing ratio has a positive and significant effect on financial performance, supporting the hypothesis that profit-loss sharing financing (Mudarabah and Musharakah) reduces information asymmetry and aligns the interests of banks with their clients. The directors-employees welfare ratio also demonstrates a positive and significant effect, suggesting that investment in employee welfare relative to directors’ compensation enhances productivity, loyalty, and financial performance. In contrast, the equitable distribution ratio does not exhibit a significant effect on short-term financial performance, possibly because its benefits are long-term or operate through mediating pathways such as reputation and stakeholder trust. These findings highlight the importance of authentic Islamic banking practices particularly profit sharing and employee welfare as not only religiously mandated but also financially rewarding. The study provides implications for Islamic bank management and regulatory authorities to increase the share of profit-sharing financing and invest in employee welfare programs as a strategy for sustainable performance improvement.]]>
