nach oben

Journal of Management and Governance

Erschienen in:

15.09.2016

Corporate ethics: evidence from Islamic banks

verfasst von: Majdi A. Quttainah, Ali R. Almutairi

Erschienen in: Journal of Management and Governance | Ausgabe 4/2017

Einloggen

Aktivieren Sie unsere intelligente Suche, um passende Fachinhalte oder Patente zu finden.

search-config

KI-gestützte Suche

Aus

Abstract

The purpose of this study is to investigate whether banks’ management behavior is related to corporate ethics. We employ earnings-management and expense-preference measures to evaluate management behavior. Using a very large sample of banks from 15 countries and controlling for a number of bank- and country-level factors, we find that managers in Islamic banks are less likely to engage in unethical business practices compared to those in commercial banks. We also document that Shari’ah supervisory boards embedded in Islamic banks affect and shape managerial behavior and mitigate agency problems. These results establish a link between corporate ethics and management behavior through Shari’ah and Shari’ah supervisory boards.

Vorheriger Artikel Information security governance: pending legal responsibilities of non-executive boards

Nächster Artikel The influence of corporate governance on changes in risk following the global financial crisis: evidence from the Portuguese stock market

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

The SSBs are responsible for inspecting, monitoring, and sanctioning the issuance of religious rulings ex-ante and ex-post.

Velasquez (2006) defines ethics as principles of conduct governing an individual or a group.

Islamic banking refers to a system of banking in accordance with the principles of Shari’ah. There are five features that distinguish IBs from CBs: (1) underlying philosophy and morals; (2) provision of interest-free products and services; (3) restriction to Islamically acceptable business deals; (4) focus on developmental and social goals; and (5) subjection to additional oversight by the SSB (Haniffa and Hudaib 2007).

The study uses the terms commercial banks (CBs) and non-Islamic banks (non-IBs) interchangeably.

The results are similar when we use 0.005 and 0.002 as the interval threshold.

We use the absolute value of ALLP because earnings management could go in both directions (i.e., income increasing and income decreasing).

Linear regression models require linear relationships between dependent and explanatory variables, no serial correlation independence of the errors, constant variance (homoskedasticity) of errors versus time, explanatory variables, and normal error distribution. Pooled OLS requires the errors in each time period to be uncorrelated with the explanatory variables in the same time period in order for the estimator to be consistent and unbiased (Wooldridge 2002). Correcting for heteroskedasticity, we obtain robust variance estimates.

We acknowledge that our results might not be generalized to IBs that started their operations after 1993.

Given Iran has a very high concentration of IBs compared to other countries, in a robustness check, we rerun our tests excluding Iran from our sample and our results hold.

Table 3 depicts descriptive statistics of major variables for the two samples, along with the t test results for the mean differences between the two samples.

The finding is consistent with an article in Professional Risk Managers’ International Association (May 13, 2008) titled “Are Islamic banks riskier than conventional banks?” The article notes: “The risks in Islamic banks are determined by the types of contracts on its balance sheet. IBs, which have a higher proportion of core Islamic assets, are in principle riskier than conventional banks. On the other hand, IBs, which have higher proportion of non-core Islamic assets, such as cost-plus financing, have a similar risk profile as that of a conventional bank. However, credit risk mitigation is almost nonexistent in IBs. Hedging is also limited given that the hedges also need to be compliant with Islamic principles. Operational risks are much higher in IBs for the above mentioned reasons.”

The 35 % is the average of Islamic under the three measures.

We notice that the pseudo R ² in column 3 is about 9 %, which is similar to prior studies. For example, Altamuro and Beatty (2010) report values of the pseudo R ² are between 0.03 and 0.09 when using the same measure of earnings management.

The VIF values for all regression models are lower than the threshold value of 10 as suggested by Hair et al. (1998), a sign of no multicollinearity.

The adjusted R ² is 0.12, which is comparable to prior studies. For example, Shen and Chih (2005) report adjusted R ² between 0.07 and 0.18, depending on different model specifications. Kanagaretnam et al. (2010) report adjusted R ² between 0.07 and 0.08.

The adjusted R ² values in columns 1, 2, and 3 are 0.40, 0.45, and 0.56, respectively, indicating the added value of other control variables in explaining noninterest expense.

Abu Ghudda, A. (2001). The foundation, objectives, and practices of shari’a supervisory board. AAOIFI 1st Annual Conference of SSBs.

Akerlof, G. A., & Romer, P. M. (1993). Looting: The economic underworld of bankruptcy for profit. Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, 24(2), 1–74.

Ali, A. J., & Al-Owaihan, A. (2008). Islamic work ethic: A critical review. Cross cultural management: An International Journal, 15(1), 5–19.CrossRef

Alnasser, N., Osama SamihShaban, O. S., & Al-Zubi, Z. (2014). The impact of accounting ethics in improving managers’ behavior and decision making in the Jordanian Companies. British Journal Of Economics, Management & Trade, 4(9), 1441–1456.CrossRef

Altamuro, J., & Beatty, A. (2010). How does internal control regulation affect financial reporting? Journal of Accounting and Economics, 49(1–2), 58–74.CrossRef

Baumann, M. (1987). Ethics in business. USA Today.

Beasely, M. S., Carcello, J. V., Hermanson, D. R., & Neal, T. L. (2010). Fraudulent financial reporting 1999–2007: An analysis of U.S. public companies. Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Beatty, A. L., Ke, B., & Petroni, K. R. (2002). Earnings management to avoid earnings declines across publicly and privately held banks. The Accounting Review, 77(3), 547.CrossRef

Becht, M., & Barca, F. (2001). The control of corporate Europe. Oxford: Oxford University Press.

Beekun, R. I., & Badawi, J. A. (2005). Balancing ethical responsibility among multiple organizational stakeholders. Journal of Business Ethics, 60, 131–135.CrossRef

Berger, A. N., & Humphrey, D. B. (1991). The dominance of inefficiencies over scale and product mix economies in banking. Journal of Monetary Economics, 28(1), 17–148.CrossRef

Burgstahler, D., & Dichev, I. (1997). Earnings management to avoid earnings decreases and losses. Journal of Accounting and Economics, 24(1), 99–126.CrossRef

Caldwell, C., & Karri, R. (2005). Organizational governance and ethical system: A covenantal approach to building trust. Journal of Business Ethics, 58, 249–255.CrossRef

Camenisch, P. F. (1991). Marketing ethics: Some dimensions of the challenge. Journal of Business Ethics, 10(4), 245–248.CrossRef

Chapra, M. (2009). Islam and the economic challenge. Herndon, Virginia: IIIT.

Dakhlallah, K. & Miniaoui, H. (2011). Islamic banks versus non-Islamic ethical dimensions. In 2nd international conference on business and economic research (2nd ICBER 2011) Proceedings, conference master resources, Malaysia (pp. 2141–2148).

Davis, J., Schoorman, F., & Donaldson, L. (1997). Toward a stewardship theory of management. Academy of Management Review, 22(1), 20–47.

Degeorge, F., Patel, J., & Zeckhauser, R. (1999). Earnings manipulation to exceed thresholds. Journal of Business, 72, 1–33.CrossRef

Drennan, L. (2004). Ethics, governance and risk management: Lesson from mirror group news articles and barings. Journal of Business Ethics, 52(3), 257–266.CrossRef

Dyreng, S., Hanlon, M., & Maydew, E. (2010). Long run corporate tax avoidance. The Accounting Review, 83–1, 61–82.

Ferris, S. P., Jagannathan, M., & Pritchard, A. C. (2003). Too busy to mind the business? Monitoring by directors with multiple board appointments. The Journal of finance, 58(3), 1087–1111.CrossRef

Fich, E. (2005). Are some outside directors better than others? Evidence from director appointments by fortune 1000 firms. Journal of Business, 78(5), 1943–1971.CrossRef

Filatotchev, Igor, & Nakajima, Chizu. (2014). Corporate governance, responsible managerial behavior, and corporate social responsibility: Organizational efficiency versus organizational legitimacy? The Academy of Management Perspectives, 28(3), 289–306.CrossRef

Gould, S. J. (1995). Buddhist perspective on business ethics: Experiential exercise for exploration and practice. Journal of Business Ethics, 14(1), 63–70.CrossRef

Grais, W., & Pellegrini, M. (2006). Corporate governance in institutions offering Islamic financial services: Issues and options. New York, NY: World Bank Publications.

Grigorian, D. A., & Manole, V. (2002). Determinants of commercial bank performance in transition: An application of data envelopment analysis. IMF Working Paper No. 02/146.

Hair, J., Jr., Anderson, R., Tatham, R., & Black, W. (1998). Multivariate data analysis (5th ed.). Upper Saddle River, NJ: Prentice Hall.

Haniffa, R., & Hudaib, M. (2007). Exploring the ethical identity of Islamic banks via communication in annual reports. Journal of Business Ethics, 76(1), 97–116.CrossRef

Haron, S., & Ahmad, N. (2000). Conventional banking profitability theories in Islamic banking: Some evidences. Journal of Islamic Banking and Finance, 17(1), 220–238.

Hasan, Z. (2012). Corporate governance and social responsibility in Islamic financial institutions. In Ethics in financial transactions, University of Melbourne, Melbourne, Australia (pp. 1–33). Retrieved from http://zulkiflihasan.files.wordpress.com/2008/05/corporategovernance-and-social-responsibility-in-ifis1.pdf.

Jensen, M., & Meckling, W. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360.CrossRef

Johnson, R. (1993). Bank mergers and excess capacity: A study of the relative operating performance of four multi-bank holding companies. Research Paper No. 9305. Federal Reserve Bank of New York, NY.

Kanagaretnam, K., Lim, C. Y., & Lobo, G. J. (2010). Auditor reputation and earnings management: International evidence from the banking industry. Journal of Banking & Finance, 34(10), 2318–2327.CrossRef

Kaufmann, D., Kraay, A., & Mastruzzi, M. (2010). The worldwide governance indicators: A summary of methodology, data and analytical issues, World Bank Policy Research, Working Paper No. 5430.

Kayode, A. L., & Ishola, M. H. (2012). Islamic banking practices and the need for ethical concerns. Islam and Civilisational Renewal, 3(April), 506–526.

Labelle, R., Gargouri, R. M., & Francoeur, C. (2010). Ethics, diversity management, and financial reporting quality. Journal of Business Ethics, 93(2), 335–353.CrossRef

Lewis, M. K. (1999). Corporate governance and corporate financing in different cultures. In Zeljko Sevic (Ed.), Banking reform in south east European transitional economies (pp. 33–36). London: University of Greenwich Business School, Balkan Center for Public Policy and Related Studies Humanities Research Centre.

Mizruchi, M. S., & Stearns, L. B. (1994). Money, banking and financial markets. The Handbook of Economic Sociology, 313–341.

Peng, M. W. (2004). Outside directors and firm performance during institutional transitions. Strategic Management Journal, 25(5), 453–471.CrossRef

Peters, G. F., & Romi, A. M. (2014). The association between sustainability governance characteristics and the assurance of corporate sustainability reports. Auditing: A Journal of Practice & Theory, 34(1), 163–198.CrossRef

Quttainah, M. A. (2012). The origins and emergence of Islamic financial institutions. Available at SSRN 2049379.

Quttainah, M. A. (2014). Organizational form and expense-preference behavior: Evidence from Islamic banks. Economics, 2(1), 58–70.

Quttainah, M. A., Song, L., & Wu, Q. (2013). Do Islamic banks employ less earnings management? Journal of International Financial Management & Accounting, 24(3), 203–233.CrossRef

Rice, G. (1999). Islamic ethics and implications for business. Journal of Business Ethics, 18(4), 345–358.CrossRef

Rossauw, G. J. (1994). Business ethics: Where have all the Christian gone? Journal of Business Ethics, 13(7), 557–570.CrossRef

Shaffaii, S. (2008). How shariah governance empowers Islamic finance. Islamic Finance News, 5(36), 1–3.

Shen, C. H., & Chih, H. L. (2005). Investor protection, prospect theory, and earnings management: An international comparison of the banking industry. Journal of Banking & Finance, 29(10), 2675–2697.CrossRef

Shleifer, A., & Vishny, R. W. (1997). A survey of corporate governance. Journal of Finance, 52, 737–783.CrossRef

Sim, R. L. (1991). The institutionalization of organization ethics. Journal of Business Ethics, 10(7), 493–506.CrossRef

Spiller, Rodger. (2000). Ethical business and investment: A model for business and society. Journal of Business Ethics, 27(1/2), 149–160.CrossRef

Srinivasan, A., & Wall, L. (1992). Cost savings associated with bank mergers. Working Paper Series, 92-2, 50-65.

Staubus, G. J. (2005). Ethics failures in corporate financial reporting. Journal of Business Ethics, 57(1), 5–15.CrossRef

Suleiman, M. N. (1999). Corporate governance in Islamic banks. www.nzibo.com/IB2/nmsuleiman.pdf.

Sullivan, J. D., & Shkolnikov, A. (2007). Business ethics: The key role of corporate governance. Corporate Board, 162, 1.

Velasquez, M. G. (2006). Business ethics: Concepts and cases (6th ed.). Upper Saddle River, New Jersey: Pearson Prentice Hall.

Vitell, S., & Hildago, E. (2006). The impact of corporate ethical value and enforcement of ethical codes on the perceived importance of ethics in business: A comparison of US and Spanish managers. Journal of Business Ethics, 64, 31–43.CrossRef

Westphal, J. D., & Zajac, E. J. (2013). A behavioral theory of corporate governance: Explicating the mechanisms of socially situated and socially constituted agency. The Academy of Management Annals, 7(1), 607–661.CrossRef

Wilson, Rodney. (2002). Parallels between Islamic and ethical banking. Review of Islamic Economics, 11, 51–62.

Wooldridge, J. (2002). Econometric analysis of cross section and panel data. Cambridge, MA: The MIT press.

Yousef, D. A. (2001). Islamic work ethic—a moderator between organizational commitment and job satisfaction in a cross-cultural context. Personnel Review, 30(2), 152–169.CrossRef

Titel: Corporate ethics: evidence from Islamic banks
verfasst von: Majdi A. Quttainah
Ali R. Almutairi
Publikationsdatum: 15.09.2016
Verlag: Springer US
Erschienen in: Journal of Management and Governance / Ausgabe 4/2017
Print ISSN: 1385-3457
Elektronische ISSN: 1572-963X
DOI: https://doi.org/10.1007/s10997-016-9360-6

Springer Professional

Abstract

Bitte loggen Sie sich ein, um Zugang zu Ihrer Lizenz zu erhalten.

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft+Technik"

Springer Professional "Wirtschaft"

Weitere Artikel der Ausgabe 4/2017

Performance information use in public administration: an exploratory study of determinants and effects

Corporate governance effectiveness along the entrepreneurial process of a family firm: the role of private equity

The influence of corporate governance on changes in risk following the global financial crisis: evidence from the Portuguese stock market

Information security governance: pending legal responsibilities of non-executive boards

Does director capital influence board turnover after an incident of fraud? Evidence from Italian listed companies

Boards, governance and value creation in grant-giving foundations

Premium Partner