Loan Loss Provisioning in OIC Countries: Evidence from Conventional vs. Islamic Banks
34 Pages Posted: 6 Nov 2017
Date Written: January 2015
Abstract.Using a sample of 291 banks from 35 OIC (Organization of Islamic Cooperation) member countries with 2078 bank-year observations from 2003 to 2010, we analyze if bank earnings management in terms of Loan Loss Provisioning (LLP hereafter) is affected by the banking nature.We take into consideration management and governance issues such as: by nature;whether Islamic or conventional;by bank accounting standards; whether rule-based local Generally Accepted Accounting Principles (hereafter local GAAP) or principle-based International Financial Reporting Standards (hereafter IFRS); and by the bank listing status. We argue that Islamic banks may exhibit lower signs of earnings management, as the Sharīʿah 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 earnings management as IFRS requires managers to disclose more accounting information compared to local GAAP. We report mixed evidence supporting these arguments.
Keywords: International Financial Markets; Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages; Accounting
JEL Classification: G15; G21; M41
Suggested Citation: Suggested Citation