Capital and Earnings Management : Evidence from Alternative Banking Business Models

El Nahass, Marwa and Izzeldin, Marwan and Steele, Gerald Roy (2018) Capital and Earnings Management : Evidence from Alternative Banking Business Models. The International Journal of Accounting, 53 (1). pp. 20-32. ISSN 0020-7063

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Abstract

This paper examines whether institutional characteristics distinguishing Islamic from conventional banks lead to distinctive capital and earnings management behavior through the use of loan loss provisions. In our sample countries, the two banking sectors operate under different regulatory frameworks: conventional banks currently apply the “incurred” loan loss model until 2018 whereas Islamic banks mandatorily adopt an “expected” loan loss model. Our results provide significant evidence of capital and earnings management practices via loan loss provisions in conventional banks. This finding is more prominent for large and loss-generating banks. By contrast, Islamic banks tend not to use loan loss provisions in either capital or earnings management, irrespective of the bank's size, earnings profile, or the structure of their loan loss model. This difference may be attributed to the constrained business model of Islamic banking, strict governance, and ethical orientation.

Item Type:

Journal Article

Journal or Publication Title:

The International Journal of Accounting

Additional Information:

This is the author’s version of a work that was accepted for publication in The International Journal of Accounting. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in The International Journal of Accounting, 53, 1, 2018 DOI: 10.1016/j.intacc.2018.02.002

Subjects:

?? ifrsregulatory capital managementearnings managementexpected loan lossesincurred loan losses ??

Departments:

Lancaster University Management School > Economics

ID Code:

88491

Deposited By:

ep_importer_pure

Deposited On:

31 Oct 2017 13:16

Refereed?:

Yes