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The impact of corporate governance and agency effect on earnings management – A test of the dual banking system

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  • Alam, Nafis
  • Ramachandran, Jayalakshmy
  • Nahomy, Aisha Homy

Abstract

This study investigates the impact of the Board characteristics, Chief Executive Officer’s (CEO) power and Shariah supervision on Earnings Management (EM) within conventional and Islamic banks. We provide evidence that EM levels do not significantly differ between Islamic and conventional banks. Contrary to public belief, additional value-based attributes such as the Shariah Supervisory Board (SSB) that promotes ethical and religious values, do not help in the restriction of opportunistic behaviour in Islamic banks. Additionally, attributes such as board size, firm size and leverage have a significant negative influence on EM of both Islamic and conventional banks. Our results are important in deliberating that the word ‘Islamic’ must not be used merely as a profit manifestation, but instead must promote a value-based business, which in turn could ensure reliability and sustainability.

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  • Alam, Nafis & Ramachandran, Jayalakshmy & Nahomy, Aisha Homy, 2020. "The impact of corporate governance and agency effect on earnings management – A test of the dual banking system," Research in International Business and Finance, Elsevier, vol. 54(C).
    • Handle: RePEc:eee:riibaf:v:54:y:2020:i:c:s027553191930707x
    DOI: 10.1016/j.ribaf.2020.101242
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    More about this item

    Keywords

    Corporate governance; Agency cost; Islamic financial institutions; Sharia; Supervisory board; Earnings management;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation
    • N25 - Economic History - - Financial Markets and Institutions - - - Asia including Middle East

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