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

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Loan loss provisions, bank valuations and discretion : a comparative study between conventional and Islamic banks. / El Nahass, Marwa; Izzeldin, Marwan; AbdElsalam, Omneya.

In: Journal of Economic Behavior and Organization, Vol. 103, No. Supplement, 07.2014, p. S160-S173.

Research output: Contribution to journalJournal article

Harvard

El Nahass, M, Izzeldin, M & AbdElsalam, O 2014, 'Loan loss provisions, bank valuations and discretion: a comparative study between conventional and Islamic banks', Journal of Economic Behavior and Organization, vol. 103, no. Supplement, pp. S160-S173. https://doi.org/10.1016/j.jebo.2013.08.018

APA

El Nahass, M., Izzeldin, M., & AbdElsalam, O. (2014). Loan loss provisions, bank valuations and discretion: a comparative study between conventional and Islamic banks. Journal of Economic Behavior and Organization, 103(Supplement), S160-S173. https://doi.org/10.1016/j.jebo.2013.08.018

Vancouver

El Nahass M, Izzeldin M, AbdElsalam O. Loan loss provisions, bank valuations and discretion: a comparative study between conventional and Islamic banks. Journal of Economic Behavior and Organization. 2014 Jul;103(Supplement):S160-S173. https://doi.org/10.1016/j.jebo.2013.08.018

Author

El Nahass, Marwa ; Izzeldin, Marwan ; AbdElsalam, Omneya. / Loan loss provisions, bank valuations and discretion : a comparative study between conventional and Islamic banks. In: Journal of Economic Behavior and Organization. 2014 ; Vol. 103, No. Supplement. pp. S160-S173.

Bibtex

@article{e73933d92391480a92aaeb487774bb96,
title = "Loan loss provisions, bank valuations and discretion: a comparative study between conventional and Islamic banks",
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.",
keywords = "Islamic banks, Conventional banks, Value relevance, Loan loss provisions, Earnings management",
author = "{El Nahass}, Marwa and Marwan Izzeldin and Omneya AbdElsalam",
year = "2014",
month = jul,
doi = "10.1016/j.jebo.2013.08.018",
language = "English",
volume = "103",
pages = "S160--S173",
journal = "Journal of Economic Behavior and Organization",
issn = "0167-2681",
publisher = "Elsevier",
number = "Supplement",

}

RIS

TY - JOUR

T1 - Loan loss provisions, bank valuations and discretion

T2 - a comparative study between conventional and Islamic banks

AU - El Nahass, Marwa

AU - Izzeldin, Marwan

AU - AbdElsalam, Omneya

PY - 2014/7

Y1 - 2014/7

N2 - 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.

AB - 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.

KW - Islamic banks

KW - Conventional banks

KW - Value relevance

KW - Loan loss provisions

KW - Earnings management

U2 - 10.1016/j.jebo.2013.08.018

DO - 10.1016/j.jebo.2013.08.018

M3 - Journal article

VL - 103

SP - S160-S173

JO - Journal of Economic Behavior and Organization

JF - Journal of Economic Behavior and Organization

SN - 0167-2681

IS - Supplement

ER -