Islamic banks' risk, profitability and risk disclosure

Ashwag Dignah, Radziah Abdul Latiff, Aisyah Abdul Rahman

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

Islamic banks operate in a different manner from conventional banks, particularly in adopting profit loss sharing contracts, resulting in arguably different risks and profitability profiles. Drawing from the Islamic principle of full disclosure, stakeholder and signalling theories, this research examines whether there is a relationship between risk, profitability measures and the level of risk disclosure. Using a sample of Islamic banks in Asia, the Middle East and Europe for the period between 2006 and 2009, the results from a panel data analysis confirm a positive association between return on equity and risk disclosure. There is modest evidence of a negative association between risk (as measured by leverage and proportion of loan to total asset) and risk disclosure. The results generally support the signalling theory rather than thestakeholder theory. A major policy implication is that risk disclosure should be mandatory as voluntary disclosure cannot be expected.

Original languageEnglish
Pages (from-to)105-120
Number of pages16
JournalAfro-Asian Journal of Finance and Accounting
Volume3
Issue number2
DOIs
Publication statusPublished - Jul 2012

Fingerprint

Islamic financial institutions
Risk disclosure
Bank risk
Profitability
Signaling theory
Panel data analysis
Asia
Proportion
Stakeholder theory
Profit
Policy implications
Middle East
Disclosure
Return on equity
Voluntary disclosure
Leverage
Loans
Assets

Keywords

  • IBs
  • ISLAMIC banks
  • Profitability
  • Risk
  • Risk disclosure

ASJC Scopus subject areas

  • Accounting
  • Finance

Cite this

Islamic banks' risk, profitability and risk disclosure. / Dignah, Ashwag; Abdul Latiff, Radziah; Abdul Rahman, Aisyah.

In: Afro-Asian Journal of Finance and Accounting, Vol. 3, No. 2, 07.2012, p. 105-120.

Research output: Contribution to journalArticle

Dignah, Ashwag ; Abdul Latiff, Radziah ; Abdul Rahman, Aisyah. / Islamic banks' risk, profitability and risk disclosure. In: Afro-Asian Journal of Finance and Accounting. 2012 ; Vol. 3, No. 2. pp. 105-120.
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