Loan loss provisions, bank valuations and discretion:a comparative study between conventional and Islamic banks

El Nahass, Marwa and Izzeldin, Marwan and AbdElsalam, Omneya (2014) Loan loss provisions, bank valuations and discretion:a comparative study between conventional and Islamic banks. Journal of Economic Behavior and Organization, 103 (Supple). S160-S173. ISSN 0167-2681

Full text not available from this repository.

Abstract

This study investigates the use of reported loan loss provisions (LLP) by investors in their valuations of banks within the Middle East and North Africa region between the years 2006 and 2011. We decompose LLP into discretionary and non-discretionary components to test for differential valuations in the two banking sectors. We use alternative criteria to define the components of LLP in banks: loan quality/size and earnings management/manipulation incentives. We employ a price-level valuation model estimated using two-stage analyses. We find that LLP has positive value relevance to investors in both banking sectors. Investors in Islamic banks price the discretionary component relatively lower than their conventional counterparts. We attribute this result to differences in product and governance structures as well as to the religious perception of Islamic banking. In both banking sectors, investors construe an increase in the non-discretionary component as irrelevant valuation information. Our results are relevant to bank regulators in showing the signalling effect of LLP to bank value and stability.

Item Type:
Journal Article
Journal or Publication Title:
Journal of Economic Behavior and Organization
Uncontrolled Keywords:
/dk/atira/pure/subjectarea/asjc/2000/2002
Subjects:
ID Code:
66696
Deposited By:
Deposited On:
23 Sep 2013 09:07
Refereed?:
Yes
Published?:
Published
Last Modified:
24 Mar 2020 03:33