Do Islamic Banks Employ Less Earnings Management?

Majdi Quttainah ()
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Majdi Quttainah: The Lally School of Management, and Technology of Rensselaer Polytechnic Institute

No 645, Working Papers from Economic Research Forum

Abstract: In this paper, we examine 1) whether Islamic banks are less likely to manage their earnings, and 2) how the corporate governance system, especially Shari’ah Supervisory Boards (SSBs), impacts the earnings management behaviors within Islamic banks. Using a sample of Islamic Banks and a matched non-Islamic Banks in the ERF region, we find that first; Islamic Banks are less likely to conduct earnings management as measured by both earnings loss avoidance and abnormal loan loss provisions. Second, there is no significant difference between Islamic Banks with and without SSBs in terms of earnings management. Third, several SSB characteristics and board characteristics, such as SSB size, Auditing Organization for Islamic Financial Intuitions (AAOIFI), and outside board members, are important determinants of the earnings management for Islamic Banks with SSBs.

Pages: 32
Date: 2011-01-10, Revised 2011-01-10
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Citations: View citations in EconPapers (5)

Published by The Economic Research Forum (ERF)

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