Earnings Management and Investor Protection: An International Comparison

Using a sample from 22 countries, I investigate the relations between the accuracy of analysts’ earnings forecasts and the level of annual report disclosure, and between forecast accuracy and the degree of enforcement of accounting standards. I document that firm-level disclosures are positively related to forecast accuracy, suggesting that such disclosures provide useful information to analysts. I construct a comprehensive measure of enforcement and find that strong enforcement is associated with higher forecast accuracy. This finding is consistent with the hypothesis that enforcement encourages managers to follow prescribed accounting rules, which, in turn, reduces analysts’ uncertainty about future earnings. I also find evidence consistent with disclosures being more important when analyst following is low and with enforcement being more important when more choice among accounting methods is allowed. ∗University of Toronto. I appreciate the helpful comments on various versions of this paper by Joel Amernic, Hollis Ashbaugh, Ray Ball (editor), Sudipta Basu, Jeff Callen, Bjørn Jørgensen, Peter Pope (referee), Beverly Walther, and participants at the 2001 EIASM Workshop on Accounting and Regulation, 2002 European Accounting Association Meeting, 2002 Journal of Accounting Research conference, 2002 Canadian Academic Accounting Association meeting, and 2002 American Accounting Association annual meeting. All errors are my own. I gratefully acknowledge the financial support of the Norwegian School of Economics and Business Administration. I thank IBES International Inc. for providing earnings forecast data.

Disclosure Practices, Enforcement of Accounting Standards, and Analysts' Forecast Accuracy: An International Study

Computational statistics & data analysis

The performance and accountability of boards of directors and effectiveness of governance mechanisms continue to be a matter of concern. Focusing on differences between conventional banks and Islamic banks, we examine the effect of (i) Shari’ah supervision boards, (ii) board structure and (iii) CEO-power on performance during the period 2005–2011. We find Shari’ah supervision boards positively impact on Islamic banks’ performance when they perform a supervisory role, but the impact is negligible when they have only an advisory role. The effect of board structure (board size and board independence) and CEO power (CEO-chair duality and internally recruited CEO) on the performance of Islamic banks is overall negative. Our findings provide support for the positive contribution of Shari’ah supervision boards but also emphasize the need for enforcement and regulatory mechanism for them to be more effective.

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Shari’ah supervision, corporate governance and performance: Conventional vs. Islamic banks

We examine whether the difference in governance structures influences the risk taking and performance of Islamic banks compared to conventional banks. Using a sample of 52 Islamic banks and 104 conventional banks in 14 countries for the period from 2005 to 2013, we conclude that the governance structure in Islamic banks plays a crucial role in risk taking as well as financial performance that is distinct from conventional banks. Particularly, we show that the governance structure in Islamic banks allows them to take higher risks and achieve better performance because of product complexities and transaction mechanisms. However, Islamic banks maintain a higher capitalization compared to conventional banks. These results support the research on Islamic investment and risk taking. Our results add a new dimension to the governance research that could be a valuable source of knowledge for policy makers and regulators in the financial services sector.

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The governance, risk-taking, and performance of Islamic banks

This paper investigates risk and stability features of Islamic banking using a sample of 553 banks from 24 countries between 1999 and 2009. Small Islamic banks that are leveraged or based in countries with predominantly Muslim populations have lower credit risk than conventional banks. In terms of insolvency risk, small Islamic banks also appear more stable. Moreover, we find little evidence that Islamic banks charge rents to their customers for offering Sharia compliant financial products. Our results also show that loan quality of Islamic banks is less responsive to domestic interest rates compared to conventional banks.

https://hal-unilim.archives-ouvertes.fr/hal-00915115/document

Risk in Islamic Banking

This paper examines the recent empirical literature in Islamic banking and finance, highlights the main findings and provides a guide for future research. Early studies focus on the efficiency, production technology and general performance features of Islamic versus conventional banks, whereas more recent work looks at profit and loss-sharing (PLS) behaviour, competition, risks as well as other dimensions such as small business lending and financial inclusion. Apart from key exceptions, the empirical literature suggests no major differences between Islamic and conventional banks in terms of their efficiency, competition and risk features (although small Islamic banks are found to be less risky than their conventional counterparts). There is some evidence that Islamic finance aids inclusion and financial sector development. Results from the empirical finance literature, dominated by studies that focus on the risk/return features of mutual funds, finds that Islamic funds perform as well, if not better, than conventional funds - there is little evidence that they perform worse than standard industry benchmarks. Some recent evidence, however, suggests that Islamic bond (Sukuk) issuance destroys value for shareholders.

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Islamic Banking and Finance: Recent Empirical Literature and Directions for Future Research

/pdf/risk-in-islamic-banking-2d7rqumzbc.pdf

This paper investigates the impact of non-interest income businesses on bank lending. Using quarterly data on 8,287 U.S. commercial banks over 2003-2010, we find that the non-interest income activities of banks with total assets above $100 million ('non-micro' banks) influence credit risk. In particular, banks that have higher income from fiduciary activities have lower credit risk. The impact is more pronounced during the post-crisis period. Our findings suggest that fiduciary activities induce managers to behave more prudently in lending because such activities are found to increase banks' franchise value. Other non-interest income activities that may be thought to have an influence on lending - such as service charges on deposit accounts - do not appear to have any robust relationship with the quality of credit extended. Moreover, we find little evidence of income or price cross- subsidization between traditional intermediation and non-interest income activities, except for fiduciary activities after the crisis. Furthermore, we find that micro banks suffer from diseconomies in joint production of non-interest income activities and lending.

/pdf/non-interest-income-activities-and-bank-lending-2tvojiokt6.pdf

Pejman Abedifar

Papers

Risk in Islamic Banking

Islamic Banking and Finance: Recent Empirical Literature and Directions for Future Research

Risk in Islamic Banking

Risk in Islamic Banking

Non-Interest Income Activities and Bank Lending