Loan Loss Provisioning in OIC Countries: Evidence from Conventional vs. Islamic Banks

34 Pages Posted: 6 Nov 2017

See all articles by Ali Ashraf

Ali Ashraf

Frostburg State University

M. Kabir Hassan

University of New Orleans - College of Business Administration - Department of Economics and Finance

Syed Abul Basher

East West University

Multiple version iconThere are 2 versions of this paper

Date Written: January 2015

Abstract

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

Ashraf, Ali and Hassan, M. Kabir and Basher, Syed Abul, Loan Loss Provisioning in OIC Countries: Evidence from Conventional vs. Islamic Banks (January 2015). Journal of King Abdulaziz University: Islamic Economics, Vol. 28, No. 1, 2015, Available at SSRN: https://ssrn.com/abstract=3064929

Ali Ashraf

Frostburg State University ( email )

Frostburg, MD 21532
United States

HOME PAGE: http://www.frostburg.edu/dept/mktfin/department-faculty/dr-ali-ashraf/

M. Kabir Hassan (Contact Author)

University of New Orleans - College of Business Administration - Department of Economics and Finance ( email )

2000 Lakeshore Drive
New Orleans, LA 70148
United States

Syed Abul Basher

East West University ( email )

Aftabnagar Main Road
Plot No. A-2
Dhaka, 1219
Bangladesh

HOME PAGE: http://syedbasher.org

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