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  • MS_16_3_771_Final_Draft_LM (1)

    Rights statement: 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

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    Available under license: CC BY-NC-ND: Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License

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Capital and Earnings Management: Evidence from Alternative Banking Business Models

Research output: Contribution to journalJournal articlepeer-review

Published
<mark>Journal publication date</mark>03/2018
<mark>Journal</mark>The International Journal of Accounting
Issue number1
Volume53
Number of pages13
Pages (from-to)20-32
Publication StatusPublished
Early online date23/02/18
<mark>Original language</mark>English

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.

Bibliographic note

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