scholarly journals Do ownership structures affect risk disclosure in Islamic banks? International evidence

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Rihab Grassa ◽  
Nejia Moumen ◽  
Khaled Hussainey
Keyword(s):  
Emerging Economies ◽  
Ownership Structure ◽  
Generalized Method Of Moments ◽  
Policy Implications ◽  
Ownership Concentration ◽  
Annual Reports ◽  
Islamic Banks ◽  
Risk Disclosure ◽  
Content Type ◽  
Transparency And Disclosure

Purpose Previous works assessing the determinants of banks’ risk disclosure in emerging economies focused on one aspect of risk reporting such as market risk disclosure or operational risk disclosure. While banks’ transparency about other major risk types (e.g. capital adequacy, liquidity risk…) is important for both market discipline and for their financial stability, no previous research has tried to discuss their determinants for Islamic banks. This paper aims to fill the gap by assessing the effects of deposits structure and ownership concentration on risk disclosure for Islamic banks. Design/methodology/approach The authors based on a sample of 71 Islamic banks operating in 12 emerging economies and observed over the period 2009–2014. The authors used a risk disclosure index covering nine dimensions, and the authors used both generalized least squares (GLS) regression and generalized method of moments (GMMs) as econometric tools. Findings The findings suggests that the level of risk disclosure is lower for Islamic banks with higher ownership concentration, leveraged bank, listed banks and Islamic banks. However, risk disclosure is higher for Islamic banks with higher concentration of profit sharing investment account (PSIA) and higher foreign ownership, large Islamic banks, aged banks, Islamic banks operating in country with higher country transparency index, positively correlated to gross domestic products and Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) adoption. By disaggregating total risk disclosure into the nine sub-categories, the authors are able to specify, also, the components of risk disclosure impacted by various determinants. Research limitations/implications This paper’s findings are subject, also, to a number of limitations. First, there was manual scoring of annual reports (subjectivity). Second, while some items might have higher information content or be more useful than others for users of Islamic banks’ annual reports, no weighting is assigned to items. Third, the research focuses exclusively on the 12 countries and excludes the other Middle East, Southeast Asia and Far East countries where ownership structure and deposits structure might affect risk disclosure differently. Originality/value The findings suggest many policy implications. First, regulators have to improve corporate governance mechanisms in Islamic banking system through the optimization of ownership structure (dispersed ownership) to promote transparency and disclosure. Second, regulators and policymakers should revise guidelines in the main purpose to protect PSIAs holders (considered as minor shareholders without voting power) through promoting disclosure and transparency. Third, the findings can be useful for many international supervisory bodies such as the IFSB and AAOIFI to evaluate transparency and disclosure standards.

Deposits structure, ownership concentration and corporate governance disclosure in GCC Islamic banks

2018 ◽  
Vol 9 (4) ◽  
pp. 587-606 ◽  
Author(s):  
Rihab Grassa
Keyword(s):  
Corporate Governance ◽  
Ownership Structure ◽  
Far East ◽  
Policy Implications ◽  
Ownership Concentration ◽  
Islamic Banks ◽  
Content Type ◽  
Gcc Countries ◽  
Transparency And Disclosure ◽  
Governance Disclosure

Purpose This paper aims to assess the effects of deposits structure and ownership structure on the GCC Islamic banks’ corporate governance disclosure (CGD) practices. Design/methodology/approach The study is based on a sample of 38 Islamic banks operating in five Gulf Cooperation Council (GCC) countries, and the authors observed them over the period from 2006 to 2011. The authors used the transparency and disclosure score, developed by Standard & Poor’s (S&P), to identify the sample’s CGD scores. Findings This paper’s findings suggest that the level of CGD is lower for Islamic banks with higher ownership concentration, for levered Islamic banks and for Islamic banks with greater concentration of nonprofit-sharing investment accounts (PSIA) and is higher for Islamic banks with greater concentrations of PSIA; the Islamic bank size; the bank age; listed bank and the country transparency index. By disaggregating the total CGD into the three sub-categories, the authors are able to specify, also, the components of corporate governance (CG) impacted by various determinants. Research limitations/implications This paper is subject to a number of limitations. First, there is manual scoring of annual reports (subjectivity). Second, the research focuses exclusively on the GCC context and excludes the other Middle East, Southeast Asia and Far East countries, where ownership structure and deposits structure might affect CGD differently. Third, the governance score, which is used in this research, is developed by S&P and does not take into account the characteristics of Islamic banks. Practical implications The findings of this paper suggest many policy implications. First, through the optimization of ownership structure, GCC countries’ regulators have to improve the Islamic banking system’s CG mechanisms through the optimization of ownership structure (dispersed ownership) to promote transparency and disclosure. Second, regulators and policymakers should revise guidelines with the main purpose of protecting PSIA’ holders (considered to be minor shareholders without voting power) through promoting disclosure and transparency. Third, the findings can be useful for many international supervisory bodies, like the Islamic Financial Services Board (IFSB) and Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), in evaluating transparency and disclosure standards. Originality/value This study is expected to be useful for all market participants, namely, investors, financial analysts, managers, marker regulators and many international Islamic supervisory bodies, such as the IFSB and AAOIFI, by providing new requirements on CGD in the GCC region and in better understanding its determinants for Islamic banks in this region.

How does ownership structure affect the financing and dividend decisions of firm?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Tahar Tayachi ◽  
Ahmed Imran Hunjra ◽  
Kirsten Jones ◽  
Rashid Mehmood ◽  
Mamdouh Abdulaziz Saleh Al-Faryan
Keyword(s):  
Ownership Structure ◽  
Dividend Policy ◽  
Generalized Method Of Moments ◽  
Institutional Ownership ◽  
Agency Cost ◽  
Debt Financing ◽  
Policy Implications ◽  
Managerial Ownership ◽  
Content Type ◽  
The Impact

Purpose Ownership structure deals with internal corporate governance mechanism, which plays important role in minimizing conflict of interests between shareholders and management Ownership structure is an important mechanism that influences the value of firm, financing and dividend decisions. This paper aims to examine the impact of the ownership structures, i.e. managerial ownership, institutional ownership on financing and dividend policy. Design/methodology/approach The authors use panel data of manufacturing firms from both developed and developing countries, and the generalized method of moments (GMM) is applied to analyze the results. The authors collect the data from DataStream for the period of 2010 to 2019. Findings The authors find that managerial ownership and ownership concentration have significant and positive effects on debt financing, but they have significant and negative effects on dividend policy. Institutional ownership shows a positive impact on financing decisions and dividend policy for sample firms. Originality/value This study fills the gap by proving the policy implications for both firms and investors, as managers prefer debt financing, but at the same time try to ignore dividend payment. Therefore, investors may not invest in firms with a higher proportion of managerial ownership and may choose to invest more in institutional ownership, which lowers the agency cost.

Ownership structure, deposits structure, income structure and insolvency risk in GCC Islamic banks

2016 ◽  
Vol 7 (2) ◽  
pp. 93-111 ◽  
Author(s):  
Rihab Grassa
Keyword(s):  
Ownership Structure ◽  
Far East ◽  
Banking Regulation ◽  
Ownership Concentration ◽  
Islamic Banks ◽  
Strategic Decisions ◽  
Revenue Diversification ◽  
Content Type ◽  
Insolvency Risk ◽  
The Impact

Purpose This paper aims to examine the effect of the concentration of ownership concentration and the deposits structure on the link between income structure and insolvency risk in Islamic banks operating in Gulf Cooperation Council (GCC) countries. Design/methodology/approach Using data for 43 GCC Islamic banks over the period from 2005 to 2012, this paper specifies a three-stage least-squares model in which the impact of the concentration of ownership concentration and the deposits structure on income diversification and insolvency risk is jointly analyzed to address the problem of endogeneity. Findings The findings show that the income structure influences the insolvency risk in Islamic banks with a concentrated ownership structure. This is because the deposits structure and large shareholders influence strategic decisions. Research limitations/implications This paper is, also, subject to a number of limitations. First, this study focuses exclusively on the GCC context and excludes the other Middle East and Far East countries. Second, the paper does not take into consideration banking regulation. Practical implications The paper findings shed light on the ongoing debate about the benefits of revenue diversification and also provide valuable insights for market participants, regulators and supervisors about what drives performance in Islamic banks. Originality/value The paper fills the gap in the existing literature on insolvency risk in Islamic banks. It is expected to provide useful information for policy makers and Islamic bankers to develop a sound Islamic banking industry in the GCC region. In addition, the link identified between ownership concentration, deposits structure and revenue diversification is a novel way of analyzing the impact of the latter on insolvency risk in Islamic banks.

Ownership structure and financial performance in Islamic banks

2014 ◽  
Vol 7 (2) ◽  
pp. 146-160 ◽  
Author(s):  
Sarra Ben Slama Zouari ◽  
Neila Boulila Taktak
Keyword(s):  
Corporate Governance ◽  
Financial Performance ◽  
Empirical Evidence ◽  
Ownership Structure ◽  
Policy Implications ◽  
Bank Performance ◽  
Islamic Banks ◽  
Content Type ◽  
Islamic Bank ◽  
The Impact

Purpose – This study aims to investigate empirically the relationship between ownership structure (concentration and mix) and Islamic bank performance, with a special attention to the identity of the block investor (foreign, family, institutional and state). Design/methodology/approach – Regression analyses are conducted to test the impact of the identity of the first shareholders and the degree of concentration on Islamic bank performance, using a panel data sample of 53 Islamic banks scattered over > 15 countries from 2005 to 2009. Findings – Results suggest that ownership is concentrated at 49 per cent, and for 41 banks from the full sample, the ultimate owner is institutional. State investors come in second place, followed by family ultimate shareholders. Using return on assets and return on equity as performance measures, empirical evidence highlights the absence of correlation between ownership concentration and Islamic bank performance. It also reveals that the combined effort of family and state investors is beneficial to bank performance. Results also indicate that banks with institutional and foreign shareholders do not perform better. Empirical findings suggest that the financial crisis impacts negatively Islamic bank performance. Research limitations/implications – The use of dummy variables to measure the nature of the largest owner represents the main limitation of this study. This is due to the lack of information, as the percentage of the largest capital held referring to owner category was available only for some banks. Practical implications – This research has given a brighter insight into corporate governance and bank performance in selected Islamic banking institutions. Findings provided useful information to bank managers, investors and policy makers. Financial performance can be improved by identifying practices associated with ownership structure. So, it will have policy implications for Islamic banks as to how to improve their performance. Finally, different types of bank ownership have had different concerns about implementing corporate governance practices among Islamic banks. Originality/value – This work is the first of its kind for Islamic banks. It extends previous research by examining whether ownership structure (concentration and mix) affects performance. It also fills the gap in the literature by providing empirical evidence on a large sample involving data from 15 countries. Finally, manual data collection on ownership structure constitutes a large part of the research for this paper.

Debt and ownership structure: evidence from Italy

2016 ◽  
Vol 16 (5) ◽  
pp. 883-905 ◽  
Author(s):  
Fabrizio Rossi ◽  
Richard J. Cebula
Keyword(s):  
Ownership Structure ◽  
Institutional Investors ◽  
Agency Costs ◽  
Generalized Method Of Moments ◽  
Negative Relationship ◽  
Ownership Concentration ◽  
Policy Makers ◽  
Content Type ◽  
Practical Implications

Purpose The purpose of this study is to investigate the relationship between the debt and ownership structure of a sample of Italian-listed companies to measure the role assumed in the control and monitoring of agency costs. Design/methodology/approach This study examines a balanced panel data, using both a random effects model and a generalized method of moments model to better capture any problems related to the endogeneity of the variables in the model. Findings The results provide evidence of a positive relationship between debt and ownership concentration on the one hand and a negative relationship between debt and institutional investors on the other hand. The debt seems to assume both functions, i.e. the disciplinary role of substitute at low levels of ownership concentration and a complementary role at high levels of ownership concentration. Practical implications This study provides three practical implications. The first is that the complementarity between debt and ownership concentration provides evidence of the entrenchment effect and tends to weaken the company financially. Second, the results also provide useful prompts to policy-makers who should encourage the presence of institutional investors. Third, the policy-makers should also encourage the expansion of the stock market to enhance the protection of shareholders, reduce private control benefits and provide Italy the same opportunities as other common and civil law countries to collect risk capital, avoiding the abuse of debt. Originality/value The empirical results suggest that ownership concentration increases the degree of corporate debt, whereas institutional investors assume the disciplinary role of monitoring and controlling agency costs. The results provide evidence of both the entrenchment effect and the alignment-of-interests hypothesis and that the expropriation theory seems to prevail over the control and monitoring role.

scholarly journals Corporate governance and Islamic banks’ products and services disclosure

2018 ◽  
Vol 31 (1) ◽  
pp. 75-89 ◽  
Author(s):  
Rihab Grassa ◽  
Raida Chakroun ◽  
Khaled Hussainey
Keyword(s):  
Corporate Governance ◽  
Financial Reporting ◽  
Policy Implications ◽  
Annual Reports ◽  
Islamic Banks ◽  
Governance Mechanisms ◽  
Board Size ◽  
Content Type ◽  
Long Period ◽  
Corporate Governance Mechanisms

Purpose The purpose of this paper is to examine the determinants of Islamic banks (IBs) product and services disclosure (PSD). Design/methodology/approach A computer-based content analysis is run upon the annual reports for a sample of 78 IBs operating in 11 countries from 2004 to 2012 to find the number of product and services statements. The levels and trends of PSD are identified. A regression analysis to identify the factors affecting PSD in IBs is also used. Findings The findings suggest that there has been a significant improvement of PSD over time. The results show a positive association between PSD and Shariah board size, board size, chief executive officer (CEO) tenure, duality in position, blockholders and investment account holders. However, they show a negative association between PSD and institutional ownership. In addition, it appears that board independence does not affect significantly banks’ PSD. It is also found that the bank performance, bank age, leverage, listing, adoption of international financial reporting standards, adoption of Accounting and Auditing Organization for Islamic Financial Institutions and country transparency index have a positive effect on the PSD. Originality/value This study offers an original contribution to corporate disclosure literature by being the first to develop and investigate PSD for a large sample of IBs during a long period of time. It links P&S with bank corporate governance characteristics. The findings have many important policy implications. More specifically, this paper encourages regulators in the studied countries to improve corporate governance mechanisms in their Islamic banking systems through the optimization of ownership structure, CEO’s characteristics and the board’s characteristics, to promote PSD. Moreover, the findings support the theoretical predictions of the generalized agency theory. This study’s empirical evidence enhances the understanding of the corporate social responsibility disclosure environment in general and the PSD environment in particular for IBs. This study is the first one that measures PSD in the annual reports for a large cross-countries sample of IBs during a long period of time. It is also the first one that links PSD with IBs corporate governance mechanisms.

“Sub-debt trap”: a real effect of an ill-design adoption of basel accord in the Bangladeshi banking industry

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
A.K.M. Kamrul Hasan ◽  
Yasushi Suzuki
Keyword(s):  
Developing Countries ◽  
Banking Industry ◽  
Equity Capital ◽  
Policy Implications ◽  
Annual Reports ◽  
Regression Result ◽  
Islamic Banks ◽  
Basel Accord ◽  
Content Type ◽  
The Impact

Purpose The purpose of this paper is to investigate the impact of basel accord on the Bangladeshi bank performance including Islamic banks and the role of subordinated debt (sub-debt) as basel regulatory capital (BRC). Design/methodology/approach The authors conducted the empirical investigation by adopting a quantitative approach and using the secondary data available in the annual reports of the sample banks between 2009 and 2018. This paper develops an econometric model to compare and analyze the regression result under two states of capital-to-risk adjusted assets ratio (CRAR) with sub-debt and CRAR without sub-debt. This paper analyzes the impact of sub-debt in the largest Islamic bank for the year 2007 as a case study for endorsing the findings. Findings This paper finds that CRAR has positive alignments with return on equity (ROE) and cash dividend when sub-debt is considered as Tier 2 capital. This paper observes that the huge bad loan write-off supports to downsize the asset size thus temporarily enhance the return on assets (ROA). In a nutshell, sub-debt gives banks an ill incentive to disburse steady cash dividends instead of injecting genuine equity capital, encouraging them to take more credit risk. In fact, more private commercial banks (PCBs) issued huge sub-debts between 2009 and 2018 under a unique arrangement, which the authors termed as the “sub-debt trap.” Research limitations/implications This paper draws policy implications for the banking regulator to identify and rectify a systemic problem of the “sub-debt trap” which hinders the regulatory purpose from the implementation of basel accord II and III. A limitation of this study is the authors shed analytical light on Bangladeshi banks, i.e. it a single country analysis which may not be generalized to other developing countries except matching with a similar context. Originality/value The paper contributes to accumulating empirical studies on the effectiveness of basel accord implementation in developing countries. In most of the developing countries, where institutional loopholes are a major concern, the research provides evidence that how weak institutional settings are largely responsible for harvesting the potential benefit from micro-prudential regulation such as the basel accord. To shed analytical light on developing country context, the study document that sub-debt has been instrumentalized to maintain minimum capital ratio and banks managers tends more focus on improving ROE instead of ROA. The findings of the study are supportive to other developing countries where sub-debt considered as BRC and issued through private placement. To the best of the authors’ knowledge, it is the first attempt to cast doubt on the impact of sub-debt as a BRC, given the uniqueness of the Bangladeshi banking industry, on the PCBs including Islamic banks.

Corporate ownership concentration and financial reporting quality

2019 ◽  
Vol 17 (1) ◽  
pp. 104-132 ◽  
Author(s):  
Neal Arthur ◽  
Huifa Chen ◽  
Qingliang Tang
Keyword(s):  
Financial Reporting ◽  
Ownership Structure ◽  
Reporting Quality ◽  
Policy Implications ◽  
Ownership Concentration ◽  
Financial Reporting Quality ◽  
Content Type ◽  
Controlling Shareholders ◽  
Country Level ◽  
Important Extension

Purpose The purpose of this study is to investigate whether a country’s ownership concentration affects the financial reporting quality in a cross-country setting. Design/methodology/approach This paper uses six accounting and auditing indicators to construct a comprehensive index to measure the country-level financial reporting quality. Findings The authors find a non-linear nature of the relationship between the national financial reporting quality and national ownership structure. Specifically, the relation is negative in a relatively spread ownership structure with no controlling shareholders, implying the entrenchment effects dominate. When ownership is highly concentrated, particularly with controlling shareholders whose interest is aligned with that of the firm, the relation turns to positive and alignment effects dominate. Originality/value The study is an important extension of prior research examining the financial reporting quality effect of ownership concentration. It enhances the understanding of the role of ownership concentration in determining a country’s financial reporting quality and has potential important policy implications for countries’ reformers and regulators who are concerned with the transparency of financial reporting and the quality of corporate governance.

IFRS adoption strategies and theories of economic development

2015 ◽  
Vol 5 (1) ◽  
pp. 70-121 ◽  
Author(s):  
Hakim Ben Othman ◽  
Anas Kossentini
Keyword(s):  
Developing Countries ◽  
Economic Development ◽  
Emerging Economies ◽  
Information Quality ◽  
Generalized Method Of Moments ◽  
Standard Setting ◽  
Policy Implications ◽  
Content Type ◽  
Dynamic Panel Model ◽  
Ifrs Adoption

Purpose – The purpose of this paper is to explore the underlying assumptions of economic development theories that may support or constrain accounting standard-setting strategies related to IFRS adoption and their potential effects on emerging stock markets (ESMs) development. The authors investigate the country-level association between the extent of IFRS adoption and ESMs development. Design/methodology/approach – The empirical analysis is based on a dynamic panel model using the generalized method of moments for 50 emerging economies over a period spanning from 2001 to 2007. Findings – The authors find that a higher level of IFRS adoption affects positively and significantly stock market development (SMD). More specifically, full IFRS adoption for listed firms is substantially associated with SMD. However, the authors find that partial adoption of IFRS might be not only inappropriate and irrelevant, but also significantly harmful to ESMs development. In addition, it is shown that local GAAPs shaped on the basis of IFRS with major changes are at the origin of such counter-intuitive relationships. Practical implications – This paper has some policy implications for developing countries. In order to enhance ESMs development, it is important to improve financial information quality through full adoption of IFRS. In a global economic system, it is essential to standard-setters as well as market regulators in non-adopter developing countries to require full IFRS adoption. Originality/value – This paper extends previous work of Larson and Kenny (1996) in establishing relationships between standard-setting strategies faced to IFRS and theories of economic development. The authors investigate the effects of these standard-setting strategies on SMD using a sample of 50 emerging economies.

Shari’ah compliance in Islamic banking

2014 ◽  
Vol 7 (2) ◽  
pp. 182-199 ◽  
Author(s):  
Hafij Ullah
Keyword(s):  
Supervisory Board ◽  
Weighted Average ◽  
Policy Implications ◽  
Annual Reports ◽  
Primary Data ◽  
Islamic Banking ◽  
Full Time ◽  
Islamic Banks ◽  
Content Type ◽  
Average Percentage

Purpose – The purpose of this paper is to evaluate the Shari’ah compliance status of the Islamic banks in Bangladesh. Design/methodology/approach – The research was based on both primary and secondary materials. The primary data were gathered through sample questionnaire survey and personal interviews by the researcher; the secondary data were obtained from Qur’an, Hadiths, different circulars/letters, manuals, research books and journals, annual reports, Web sites of the sample banks. Statistical tools and techniques like weighted average, percentage, SD, variance and correlation between Shari’ah violation score and bank-specific attributes were used applying statistical software Statistical Package for Social Science (version 17.0). Findings – Shari’ah compliance status of the Islamic banks in Bangladesh is in a vulnerable condition, Shari’ah compliance status highly varies among the Islamic banks, and Shari’ah violation is high in investing activities because of lack of knowledge, lack of sincerity in complying Shari’ah, poor attention in Shari’ah audit and Shari’ah research and lack of strong Shari’ah supervisory board comprising full-time skillful members. Practical implications – Among others, the major policy implications of this study are as follows: regulatory bodies and Shari’ah board members are expected to have guidelines from this study to find their limitations and to determine their future responsibilities; executives and Employees are expected to get the idea of present state of Shari’ah compliance and to identify their weaknesses in this regard; clients and other stakeholders are expected to have guidelines to choose the better Islamic banks to perform banking transactions; and the researchers in Islamic banking may usefully use the issues raised in this article for more comprehensive studies in Islamic banking and Shari’ah compliance. Originality/value – The paper opens a new avenue in justifying the status of Shari’ah compliance with a new dataset and correlating Shari’ah violation score with bank-specific attributes.

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