Loan Loss Provisioning in OIC Countries: Evidence from Conventional vs. Islamic Banks
Journal of King Abdulaziz University: Islamic Economics, Vol. 28, No. 1, pp. 23-59, (January 2015)
45 Pages Posted: 3 Apr 2017
Date Written: January 25, 2014
Using a sample of 291 banks from 35 OIC (Organization of Islamic Conference) member Muslim countries with 2078 bank year observations from 2003 to 2008, we analyze if bank earning management in terms of Loan Loss Provisioning (LLP hereafter) is affected by the banking nature whether Islamic or conventional, by the bank accounting standards whether rulebased local GAAP or principle-based IFRS, and by the bank listing status. We argue that Islamic banks may exhibit lower signs of earning management, as the Sharia’h Supervisory Boards (SSB hereafter) in Islamic banks may work as an additional tier into the governance system. On the use of accounting standard, we argue that banks using IFRS standard may exhibit lower evidence of earning management, as IFRS requires managers to disclose more accounting information as compared to Local GAAP. We report empiric results supporting both the arguments.
Keywords: International Financial Markets, Banks, Other Depository Institutions, Micro Finance Institutions, Mortgages, Accounting
JEL Classification: G15, G21, M41
Suggested Citation: Suggested Citation