Can corporate governance mechanisms reduce earnings-management practices in Islamic banks?

Virasty Fitri, Dodik Siswantoro

Research output: Contribution to journalArticlepeer-review

Abstract

Purpose: This study aims to provide empirical evidence on the role of corporate governance mechanisms in reducing earnings-management practices in Islamic banks in Asia. Design/methodology/approach: This study used 28 Islamic banks in Asia, which were listed on the stock exchange from 2013–2017. The research method used quantitative regression with data on the characteristics of Islamic banks taken from the websites of each bank. This study used discretionary loan loss provision as a proxy for measuring earnings management. Findings: The results show that only the audit committee size has a significantly negative effect on earnings management. An independent audit committee has a negative, but not significant, effect. The difference expectation signs cannot be interpreted further. Research limitations/implications: Only a few components of corporate governance were tested in this study. Therefore, it is expected that future studies will include more components. Practical implications: In general, the components of corporate governance that include the characteristics of the board of directors and the audit committee have a varied effect on reducing the earnings-management practices in Islamic banks, except audit committee size. In practice, audit committee size should have an important role in earning management reduces. Originality/value: This may be the first paper that studies the effect of corporate governance on earnings management in Islamic banks in Asia.

Original languageEnglish
Pages (from-to)16-31
Number of pages16
JournalJournal of Islamic Accounting and Business Research
Volume13
Issue number1
DOIs
Publication statusPublished - 2021

Keywords

  • Audit committee
  • Board of directors
  • Corporate governance
  • Islamic banks

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