This study aims to examine how capital structure influences earnings management for firms in the Saudi market, which is influenced by an Islamic environment that discourages…
Abstract
Purpose
This study aims to examine how capital structure influences earnings management for firms in the Saudi market, which is influenced by an Islamic environment that discourages excessive borrowing.
Design/methodology/approach
This study uses a data set that covers the period from 2013 to 2020 for firms listed on the Saudi Stock Exchange (Tadawul) and uses panel data regression models to test the impact of capital structure on earnings management.
Findings
The empirical results reveal that earnings manipulation is less common among firms that have less debt, which implies that firms in the Saudi market face high scrutiny to maintain lower leverage to meet the investment requirements of stakeholders based on religious status, which in turn reduces information asymmetry and constrains opportunistic behaviour in managing earnings.
Practical implications
This study provides insights for regulators, investors, and managers on the role of religion in shaping capital structure and monitoring financial reporting practices. This study recognises that firms’ decision-making can be explained by non-economic motives, such as religion, which can serve as a less costly external mechanism to alleviate agency costs compared to other economic motives.
Originality/value
This study contributes to the literature by exploring how capital structure and earnings management relate to a distinctive and unique Islamic context that remains largely unexamined. This context allows us to investigate this issue by examining how the Islamic environment, which is not driven by economic or legal reasons, affects managers’ choices of capital structure and earnings management. This study reveals how a strong religious setting can shape firms’ choices regarding capital structure and financial reporting practices.
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This study aims to investigate the effect of financial-tax reporting conformity jurisdictions on the association between corporate social responsibility (CSR) and aggressive tax…
Abstract
Purpose
This study aims to investigate the effect of financial-tax reporting conformity jurisdictions on the association between corporate social responsibility (CSR) and aggressive tax avoidance.
Design/methodology/approach
Using a sample comprising firms domiciled in Europe for the period 2008–2016, this study uses regression analysis to test the impact of financial-tax reporting conformity jurisdictions on the association between CSR and aggressive tax avoidance.
Findings
The empirical results show that there is a positive association between CSR and tax avoidance, and firms headquartered in low financial-tax reporting conformity jurisdictions are more likely to engage in CSR to hedge against the potential negative consequences of aggressive tax-avoidance practices as compared to firms domiciled in countries with high level of financial-tax reporting conformity.
Practical implications
This study confirms Sikka’s (2010, 2013) view of “organised hypocrisy” act committed by firms to cover their socially irresponsible activities of aggressive tax avoidance by engaging in CSR. Results have implication for various regulatory bodies and investors in that the type of financial-tax conformity does impact the link between CSR and tax avoidance, and based on that, CSR firms may engage in CSR to overcome any negative reactions that could be caused as a result of tax avoidance.
Originality/value
To the best of the author’s knowledge, this study is the first to investigate the impact of financial-tax reporting conformity jurisdictions on the association between CSR and aggressive tax avoidance. This study also contributes to the literature in that, it uses an alternative data set which offers a more objective assessment of CSR measure and covers multiple countries.
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Hana Jaradat and Mohammad Salem Oudat
The purpose of this study is to explore the influence of the regulatory environment on the efficiency of transparency within Islamic finance practices. It specifically examines…
Abstract
Purpose
The purpose of this study is to explore the influence of the regulatory environment on the efficiency of transparency within Islamic finance practices. It specifically examines how the determination of Shariah compliance, corporate governance and auditing standards is shaped by regulatory frameworks and their effects on the level of transparent financial reporting.
Design/methodology/approach
The research path was defined, and the research hypotheses were evaluated in the model using partial least squares structural equation modeling. The study collected data through structured surveys from 203 respondents.
Findings
The results of the PLS analysis demonstrate that Shari’ah compliance practices enhance transparency by making it difficult to breach ethical or social norms. These practices also infuse the presence of good corporate practices and quality audits that promote a culture of financial accountability, which is key for market and stakeholder confidence. The regulatory environment adds a critical moderating influence in these relationships by providing the oversight and enforcement capability required to ensure uniformity in the application of Shari’ah adherence and set transparency standards across borders.
Originality/value
The findings of this study have practical implications for those who implement policies, develop regulatory structures and study Islamic finance, underscoring the importance of achieving robust governance and regulatory frameworks. However, the study admits weaknesses, such as limited geographical coverage, reliance on preexisting data and the use of a cross-sectional analysis. Future research directions should include longitudinal and cross-comparative designs, the effects of modern technologies and the integration of qualitative methods alongside quantitative ones.
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Mohammed Abdullah Ammer and Abdulaziz Mohammed Alsahlawi
Islam stresses on the practice of transparency and sufficient disclosure particularly when it concerns the ethical identity of Islamic institutions. This is to make sure that the…
Abstract
Purpose
Islam stresses on the practice of transparency and sufficient disclosure particularly when it concerns the ethical identity of Islamic institutions. This is to make sure that the activities conducted in business adhere to Shari’ah principles. The purpose of this paper is to examine the impact of Shari’ah-compliant status on the accuracy of initial public offering (IPO) earnings forecasts and to investigate the effect of the existence of Muslim directors on IPO companies’ board of directors on the accuracy of earnings forecasts.
Design/methodology/approach
This study makes use of absolute forecast error as a proxy for earnings forecast accuracy. As obtained from the list of Shari’ah-compliant securities established by the Shari’ah Advisory Council of the Malaysian Securities Commission, the study sample comprised 190 Shari’ah-compliant and non-compliant IPOs. The collected data were analyzed through univariate analysis and ordinary least squares regression.
Findings
The initial findings show that during the study period, the earnings forecasts of Malaysian IPOs are accurate to some level, although such level is still unsatisfactory. The findings also showed that Shari’ah-compliant status and Muslim directorship do not positively affect the accuracy of IPO earnings forecasts.
Practical implications
The findings of the study provide some implications for regulators, financial analysts, investors and users of financial statements, particularly those desirous of investing in Islamic capital market.
Originality/value
The present study provides a new and far-reaching contribution into the debate about the earnings forecasts disclosure in the context of Islamic ethical perspective. In addition, this study is considered as the first study to extend IPO literature by examining the impact of Shari’ah-compliant status and Muslim directorship on the accuracy of management earnings forecasts disclosed in the IPO prospectus.
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Abdelhafid Benamraoui, Tantawy Moussa and Mostafa Hussien Alsohagy
This paper aims to investigate the disparity and compliance of information disclosures in Islamic banks (IBs). Specifically, the research examines IBs’ compliance with Sharia…
Abstract
Purpose
This paper aims to investigate the disparity and compliance of information disclosures in Islamic banks (IBs). Specifically, the research examines IBs’ compliance with Sharia disclosure requirements.
Design/methodology/approach
To determine the extent of disclosures and compliance with Islamic business principles, content analysis is applied to the annual reports of a sample of IBs from 11 countries. A comprehensive reporting framework has also been developed to assess the transparency and compliance of IBs with Islamic business principles. Institutional theory and core Islamic principles are used to inform the study and its findings.
Findings
The results reveal that IBs demonstrate limited transparency on the key Sharia compliance issues, and there is a wide variation in the level of reporting across the countries studied. Moreover, the authors find that IBs located in the single integrated regulatory framework (RF) countries disclose more information, followed by those located in dual RF countries and then those located in Islamic RF countries.
Originality/value
This study presents a unique and comprehensive framework to assess the areas of Sharia disclosure by IBs and provides a conceptual rationing for the actual level of IBs’ Sharia reporting. This study also fills a significant gap in the literature, as most studies in this field are based on a single-country study. The results are deemed of direct relevance to IBs’ managers, investors, policymakers, regulators and the wider public, particularly in the Muslim world.
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Harit Satt and George Iatridis
This research aims to examine the relations between Shariah compliance and earnings quality.
Abstract
Purpose
This research aims to examine the relations between Shariah compliance and earnings quality.
Design/methodology/approach
The authors study three Shariah features: Shariah compliance status, level of Shariah compliance (H-Score) and Shariah compliance persistence. The sample consists of 463 firms from the Middle East and North Africa from 2011 to 2018. A variable determining the level of Shariah compliance was created in accordance with the methodology of S&P 500 Shariah and its underlying index, S&P 500. Then, a probate relapse study was created to identify the link between Shariah compliance and earnings quality.
Findings
Results show that Shariah-compliant firms engage in lower earnings management compared to their Shariah-non-compliant counterparts. This paper reveals that Shariah compliance status and high level of Shariah compliance have significant positive association with earnings quality. The authors also find novel evidence that persistence of the Shariah-compliant status has a significant negative association with earnings quality.
Practical implications
This study only examines firms listed on MENA stock markets. It is recommended to further study different markets in addition to the emerging Arab markets in order to compare and contrast the results. Further, larger sample observations from a greater date range can be used.
Originality/value
Few studies have examined the earnings management behavior of Shariah-compliant firms vs Shariah-non-compliant ones in emerging markets; however, no study has focused on Shariah-compliant firms and their level of Shariah compliance. To the best of our knowledge, this is the first study which uses all four proxies for earnings quality in association with Shariah compliance and used new Shariah variables such as Level of Shariah Compliance and Persistent Shariah Compliance status.
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Muhammad Tahir and Salma Ibrahim
The purpose of this study is to investigate the relative performance of Shariah-compliant companies (SCCs) compared to conventional companies. This study focuses on two periods…
Abstract
Purpose
The purpose of this study is to investigate the relative performance of Shariah-compliant companies (SCCs) compared to conventional companies. This study focuses on two periods, the first being the recession period of 2007-2010 and the second, the non-recession period of 2011-2014.
Design/methodology/approach
A quantitative approach is adopted using an ordinary least square regression model. The chosen variables are those used by previous researchers in conventional studies of corporate performance. Data are selected from individual companies listed on the FTSE All World Index. This study examines two periods of time: the recession of 2007-2010 and the post-recession years of 2011-2014 to analyse performance measured by accounting returns (return on equity, return on asset and earnings per share) and market returns (stock return and price/earnings ratio).
Findings
The study found that SCCs outperformed non-Shariah compliant companies, in terms of both accounting and market returns during both periods. It was also found that size has a negative effect on performance during both periods. The degree of risk, leverage and growth has no significance in either period, but cash flow from operations has a positive effect on performance in both.
Research limitations/implications
The study could beneficially be extended by the inclusion of corporate governance variables to assess how these affect performance in SCCs.
Originality/value
In contrast to previous research carried out on indices, this study uses data from individual companies listed on the FTSE All World Index. It provides insight into the way Shariah ethics can influence performance and suggests that some of the features could be useful if adopted by conventional companies.
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Abdallah A.S. Fayad, Arifatul Husna Binti Mohd Ariff, Sue Chern Ooi, Ali H.I. Aljadba and Khaldoon Albitar
This paper aims to explore the role of ownership structure on integrated reporting quality (IRQ) in an emerging market.
Abstract
Purpose
This paper aims to explore the role of ownership structure on integrated reporting quality (IRQ) in an emerging market.
Design/methodology/approach
This study includes a sample consisting of 64 firms from Bursa Malaysia, with 173 firm-year observations from 2017 to 2020. Feasible Generalised Least Square model has been used to test the hypotheses.
Findings
The findings show that government ownership has a positive effect on IRQ and that the integrated reports and <IR> framework are well aligned. Foreign ownership influences IRQ positively. However, the results did not support the effect of family ownership on IRQ as hypothesised.
Practical implications
The findings of this research hold practical implications for companies and regulators in Malaysia. The results demonstrate to investors that both government and foreign ownership have a positive impact on IRQ. Therefore, investors can make well-informed investment decisions regarding companies with a high level of government or foreign ownership.
Originality/value
To the best of the authors’ knowledge, this is the first paper to explore the effect of ownership structure on IRQ in the Malaysian context.
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Nianyin Zeng, Hong Zhang, Yanping Chen, Binqiang Chen and Yurong Liu
This paper aims to present a novel particle swarm optimization (PSO) based on a non-homogeneous Markov chain and differential evolution (DE) for path planning of intelligent robot…
Abstract
Purpose
This paper aims to present a novel particle swarm optimization (PSO) based on a non-homogeneous Markov chain and differential evolution (DE) for path planning of intelligent robot when having obstacles in the environment.
Design/methodology/approach
The three-dimensional path surface of the intelligent robot is decomposed into a two-dimensional plane and the height information in z axis. Then, the grid method is exploited for the environment modeling problem. After that, a recently proposed switching local evolutionary PSO (SLEPSO) based on non-homogeneous Markov chain and DE is analyzed for the path planning problem. The velocity updating equation of the presented SLEPSO algorithm jumps from one mode to another based on the non-homogeneous Markov chain, which can overcome the contradiction between local and global search. In addition, DE mutation and crossover operations can enhance the capability of finding a better global best particle in the PSO method.
Findings
Finally, the SLEPSO algorithm is successfully applied to the path planning in two different environments. Comparing with some well-known PSO algorithms, the experiment results show the feasibility and effectiveness of the presented method.
Originality/value
Therefore, this can provide a new method for the area of path planning of intelligent robot.
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The purpose of this paper is to investigate the direct and indirect relationship between board gender diversity and corporate tax avoidance using corporate social responsibility…
Abstract
Purpose
The purpose of this paper is to investigate the direct and indirect relationship between board gender diversity and corporate tax avoidance using corporate social responsibility (CSR) as a mediating variable.
Design/methodology/approach
This study uses a panel dataset of 200 French firms listed during 2007–2018 period. The direct and indirect effects between board gender diversity (BGD) and tax avoidance were tested by using structural equation model analysis.
Findings
The results indicate that the presence of women on corporate boardrooms negatively affects tax avoidance. The greater the proportion of women in boards, the lower the likelihood of tax avoidance practice. In the mediation test, CSR appears to partially mediate the link between women on boards and corporate tax avoidance. Additional analysis shows that the social dimension of CSR produces this mediating effect.
Practical implications
The results have practical implications for companies in regulating the composition of their boards. To benefit from diversity, firms have to increase women‘s percentage in their boards of directors. Also, investors are encouraged to pay attention to the percentage of female directors when investing and purchasing shares.
Social implications
This study proved empirically that the higher proportion of female directors significantly reduces the possibility of tax avoidance either directly or indirectly through enhancing CSR performance. The findings show that firms with gender diversified boards are more likely to get involved in CSR for hedging against the potential consequences of aggressive tax avoidance practices. In light of the above results, firms are well-advised to strongly apply the policy encouraging or mandating women as board members to take advantage of their expected benefits.
Originality/value
The originality of this paper consists in proposing the establishment of both direct and indirect relationships between BGD and corporate tax avoidance through CSR. Unlike prior studies that have been examining the direct relationship between corporate governance mechanisms and corporate tax avoidance, this study went further to investigate the indirect relationship between these two constructs. This study also differs from prior studies as it examines the effect of BGD on each of constituting pillars of CSR, namely, environmental, social and governance. To date, an extensive part of CSR research has used the combined score of CSR, but the effects on different CSR pillars remain little investigated.