Recursos

EM studies in the banking sector can be dated back to Scheiner (1978) who investigated income smoothing in the banking industry. Since then, various authors have conducted studies on earnings manipulations by banks (Abdelsalam et al., 2016; Ahmed et al., 1999; Alali & Jaggi, 2011; Ali et al., 2015; Anandarajan et al., 2003; Anandarajan et al., 2007; Beaver & Engel, 1996; Ben Othman & Mersni, 2014; Cheng et al., 2011; Elnahass et al., 2014; Kanagaretnam et al., 2005; Kanagaretnam et al., 2010; Kwak et al., 2009; Leventis et al., 2011). Table 2.2 provides summary of these studies.

Grougiou et al., (2014) argued that the banking sector is more inclined to EM practices than the non-financial sector, because of its wide range of financial products and complicated operations that lead to information opacity and increasing information asymmetry (Levine, 2004; Mülbert, 2009). In addition, banks are representing a considerable attribution of total companies listed in stock markets, suggesting that banks have an effective part in the capital market (Kanagaretnam et al., 2010). In this respect, Taktak et al., (2010), argued that bank managers can sustain the bank’s image and robust financial position, leading to its compliance with legal requirements through EM practices. In addition, Bhat (1996) indicated that bank managers used income-smoothing practices in order to avoid earnings volatility. In the same vein, Leventis et al., (2011) stated that bank managers are more likely to involve in EM practices compared to other managers in different sectors.

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With regards to the empirical studies on EM for IBs in comparison to NIBs, Zoubi and Al-Khazali, (2007) investigated the use of total LLPs in both IBs and NIBs in the Gulf Cooperation Council (GCC) region from 2000 to 2003. They revealed that managers of both types of banks utilised total LLPs to smooth their earnings. Misman and Ahmad, (2011) have examined LLPs for both Islamic and non-Islamic banks in Malaysia from 1993 to 2009, and concluded that both IBs and NIBs used LLPs as a proxy for EM. However, IBs and NIBs were found to be acting differently with regards to the use of LLPs.

Quttainah, et al., (2013) have investigated the practice of EM in 164 banks in total, which are divided equally into 82 IBs and 82 NIBs from 11 Arab countries from 1994 to 2008. This study also examined other variables such as Shari’ah Supervisory Boards (SSB), its characteristics (e.g. size and composition) and their influence on EM. Their outcomes indicated that IBs are less likely to engage in EM compared with NIBs. Furthermore, whether or not banks have an SSB would appear to make no significant difference with regards to EM. In addition, size, Auditing Organization for Islamic Financial Intuitions (AAOIFI) and outside board members have a significant impact on EM for IBs with SSBs.

Additionally, Ben Othman and Mersni, (2014) have analysed the use of discretionary LLPs by IBs and NIBs in seven Middle East countries. Their study sample contains 21 IBs, 18 NIBs with Islamic windows and 33 NIBs for a 9-year period, from 2000 to 2008. Their results were similar to the findings of Misman and Ahmad (2011), which show that both types of banks are engaged in EM. Elnahass et al., (2014) investigated the use of LLPs by investors in their valuations of both IBs and NIBs during a period from 2006 to 2011. Their findings show that there is a positive value relevance to investors in both IBs and NIBs. However, investors are more likely to price the

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discretionary element relatively lower in IBs compared to NIBs, which they attributed to the variation in products, the religious perception of IBs and to governance structures. In addition, Ali and Syed Abul, (2015) examined a sample of 291 banks from 35 Organisation of Islamic Conference members (OIC), with 2078 bank-year observations, for a 6-year period, from 2003 to 2008. They indicated that managers of OIC banks use LLPs as a tool to manipulate earnings. More recently, Abdelsalam et al., (2016), examined the effect of organisational religiosity on the quality of earnings in both IBs and NIBs during 2008-2013. They found that IBs are less likely to manipulate earnings and employ high conservative accounting policies compared with NIBs. Table 2.2 provides summary of these studies.

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Table 2. 2 Review of the Empirical Studies on EM for IBs in comparison to NIBs

Year Data Authors Objectives Results

2000 - 2003 47 banks operate in GCC countries

Zoubi and Al-Khazali, (2007)

Examine the factors that influence LLPs in both IBs and NIBs to manage earnings.

Both IBs and NIBs utilised total LLPs to smooth their earnings.

1993-2009

16 IBs and 22 NIBs listed in Malaysian stock market

Misman and Ahmad, (2011) Exploring the treatment of LLPs as a tool in managing earnings and capital

IBs and NIBs used LLPs as a proxy for EM and are acting differently regards to the use of LLPs.

1994-2008 82 IBs and 82 NIBs from

11 Arab countries Quttainah, et al., (2013)

Investigating whether IBs are less likely to manage earnings compared to NIBs and the effect of other variables such as Shari’ah Supervisory Boards (SSB) on EM.

IBs are less likely to engage in EM compared with NIBs

2000- 2008

21 IBs, 18 NIBs with Islamic windows and 33 NIB operate in Middle East region

Ben Othman and Mersni, (2014)

Investigating the differences and factors that may influence managers of IBs to use discretion in reporting LLPs.

Both types of banks are engaged in EM

2006- 2011

34 IBs and 72 NIBs listed in MENA countries

Elnahass et al., (2014)

Examining the use of LLPs by

investors in their valuations of both IBs and NIBs

Investors are more likely to price the discretionary element relatively lower in IBs compared to NIBs

2003- 2010

46 IBs and 245 NIBs from 35 OIC member

countries Ali and Syed Abul, (2015)

Investigating whether EM practice is influenced by the banking nature whether Islamic or non-Islamic.

Bank managers of both IBs and NIBs use LLPs as a tool to manipulate earnings

2008- 2013

24 IBs and 76 NIBs operate in 12 MENA countries.

Abdelsalam et al., (2016) Examined the impact of organizational religiosity on the EM.

IBs are less likely to manipulate earnings and employ high conservative accounting policies compared with NIBs.

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