Information asymmetry and regulatory shortcomings in profit sharing investment accounts

Rashid Ameer, Radiah Othman and Nurmazilah Mahzan

International Journal of Islamic and Middle Eastern Finance and Management, 2012, vol. 5, issue 4, 371-387

Abstract: Purpose - The purpose of this paper is to explore the shortcomings in the compliance of the full-fledged Islamic banks with the Bank Negara Malaysia (BNM) disclosure guidelines related to the profit sharing investment accounts (PSIAs). Design/methodology/approach - This study uses interviews and a survey. Findings - It was found that only two out five full-fledged Islamic banks followed BNM guidelines which are based on the idea of self-regulation. The authors developed a checklist of disclosure items, and probed whether the sample banks would adopt these new disclosure items. As it transpired, some banks have been disclosing these items selectively, and/or recording them for internal control and management purposes. The findings show these banks do not disclose: policies, procedures, product design and structure; profit allocation basis, methodology of calculating profit attributable to investment account holders (IAHs). Nevertheless, disclosure related to Research limitations/implications - The banking sector regulator is not sure of whether individual Islamic banks have actually complied with all of its guidelines. The shortcomings in the disclosure are due to lack of expertise, outdated information system structure, and shortage of support and highly trained staff. The authors propose that the Islamic jurists should use Originality/value - This paper proposes new disclosure guidelines which incorporate transparency, appropriateness, and timeliness to reduce information asymmetry and enhance governance disclosure.

Keywords: Information asymmetry; Profit sharing investment accounts; Mudarabah; Islamic banks; Malaysia; Company profit sharing schemes; Islam; Banking (search for similar items in EconPapers)
Date: 2012
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