- مبلغ: ۸۶,۰۰۰ تومان
- مبلغ: ۹۱,۰۰۰ تومان
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.
In this study we empirically assess the impact of different banking business models on capital and earnings management practices. We explicitly examine the discretionary use of loan loss provisions for capital and earnings management. Our unique setting for testing capital and earnings management is where conventional and Islamic banks co-exist in the same countries but are subject to different regulatory frameworks to account for loan losses. We find evidence for the influence of bank type on capital and earnings management. Significant differences do exist in the capital and earnings management behavior between Islamic banks and conventional banks. Islamic banks tend not to engage in either capital or income smoothing through LLP, even under the wide latitude of discretion permitted through the expected loan loss model. These results hold regardless of the bank size and profitability position. For conventional banks, we find significant evidence for the use of loan loss provisions to manage both regulatory capital and earnings. Capital management is more evident for large conventional banks. Discretionary acts via loan loss provisions are more pronounced for conventional banks with poor earnings performance. We provide evidence that, unlike the expected loan loss model, the incurred loan loss model accentuates pro-cyclicality in lending. Findings in this study suggest that the opportunistic use of loan loss provisions is sensitive to the constraints imposed by the business model and the system of governance employed in banks. The expected loan loss model is soon to be universally adopted via IFRS 9. This will present an opportunity to examine the impact upon the earnings management practices of conventional banks.