Fatin Nur Hidayah Taib Khan, Nurhafiza Abdul Kader Malim and Tajul Ariffin Masron
The purpose of this study is to examine the role of activity restrictions on the financial intermediation costs in ASEAN countries.
Abstract
Purpose
The purpose of this study is to examine the role of activity restrictions on the financial intermediation costs in ASEAN countries.
Design/methodology/approach
This study used the two-step system generalized method of moments approach to tackle the endogeneity problems. The sample consists of 130 banks from ASEAN countries covering the over 2009–2022 period.
Findings
This study provides valuable insights into various dimensions of activity restrictions within the banking across ASEAN countries. The findings highlight that imposing restrictions on activities such as securities, insurance and real estate can significantly elevate intermediation costs, affecting the overall efficiency of the banking sector. Furthermore, restrictions on ownership lead to higher intermediation costs by limiting operational flexibility, thereby constraining banks’ ability to optimize their financial services.
Research limitations/implications
The sample of this study is limited to banks in ASEAN countries and focuses only on the regulations restricting banking activities.
Practical implications
The findings suggest that policymakers should conduct a comprehensive review and potential adjustment of the existing regulatory framework related to restrictions on banking activities to strike an optimal balance between risk mitigation and fostering an environment that enhances banks’ efficiency. In addition, regulators could consider introducing regulatory reforms to ownership-related restrictions to promote greater flexibility and adaptability in the banking sector.
Originality/value
This research contributes to the field of banking by offering valuable insights for policymakers and regulators in ASEAN countries. It provides empirical evidence on the impact of activity restrictions on financial intermediation costs, highlighting key factors for developing more effective regulatory strategies.
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Sarini Azizan and Nurhafiza Abdul Kader Malim
This study aims to investigate whether firms’ involvement in socially provocative business activities or businesses that are inconsistent with Shariah principles affect auditor’s…
Abstract
Purpose
This study aims to investigate whether firms’ involvement in socially provocative business activities or businesses that are inconsistent with Shariah principles affect auditor’s perceived risk associated with the financial reporting information.
Design/methodology/approach
This study uses a median regression with measures that are consistent with prior literature. This study comprises of 11,799 firm-year observations obtained from MSCI environmental, sustainable and governance STATS database.
Findings
The results provide evidence indicating that auditors relatively charge higher audit fees for Shariah non-compliant firms except for firms that are involved with alcohol and gambling businesses. Firms that are involved in gambling activities report relatively lower audit fees, whereas firms with high involvement in alcohol business activities report non-significant relationship with audit fees.
Research limitations/implications
The findings suggest that on average, ethical contextualisation on perceived acceptable behaviours is relatively consistent across beliefs and the severe lack of it has implications on auditors’ business risk assessment. However, as a social construct, the conception of ethical behaviour is highly dependent on the change in the societal values and therefore this explains the variance in the expected findings for gambling and alcohol business activities.
Originality/value
This study adds to the existing business risk literature, by examining the under-explored association between Shariah non-compliant risk and auditors’ perceived risk, measured by audit fees in a non-Muslim majority setting.
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Siti Raihana Hamzah, Obiyathulla Ismath Bacha, Abbas Mirakhor and Nurhafiza Abdul Kader Malim
The purpose of this paper is to examine the extent of risk shifting behavior in bonds and sukuk. The examination is significant, as economists and scholars identify risk shifting…
Abstract
Purpose
The purpose of this paper is to examine the extent of risk shifting behavior in bonds and sukuk. The examination is significant, as economists and scholars identify risk shifting as the primary cause of the global financial crisis. Yet, the dangers of this debt-financing feature are largely ignored – one needs to only witness the record growth of global debt even after the global financial crisis.
Design/methodology/approach
To identify the signs of risk shifting existence in the corporations, this paper compares each corporation’s operating risk before and after issuing debt. Operating risk or risk of a firm’s activities is measured using the volatility of the operating earnings or coefficient variation of earning before interest, tax, depreciation and amortization (EBITDA). Using EBITDA as the variable offers one distinct advantage to using asset volatility as previous research has – EBITDA can be extracted directly from firms’ accounting data and is not model-specific.
Findings
Risk shifting can be found in not only the bond system but also the debt-based sukuk system – a noteworthy finding because sukuk, supposedly in a different class from bonds, have been criticized in some quarters for their apparent similarity to bonds. On the other hand, this study thus shows that equity feature, when it is embedded in bonds (as in convertible bonds) or when a financial instrument is based purely on equity (as in equity-based sukuk), the incentive to shift the risk can be mitigated.
Research limitations/implications
Global awareness of the dangers of debt should be increased as a means of reducing the amount of debt outstanding globally. Although some regulators suggest that sukuk replace debt, they must also be aware that imitative sukuk pose the same threat to efforts to avoid debt. In short, efforts to ensure future financial stability cannot address only debts or bonds but must also address those types of sukuk that mirror bonds in their operation. In the wake of the global financial crisis, amid the frantic search for ways of protecting against future financial shocks, this analysis aims to help create future stability by encouraging market players to avoid debt-based activities.
Originality/value
This paper differs from the previous literature in two important ways, viewing risk shifting behavior not only in relation to debt or bonds but also when set against debt-based sukuk, which has been subjected to similar criticism. Indeed, to the extent that debts and bonds encourage risk shifting behavior and threaten the entire financial system, so, too, can imitation sukuk or debt-based sukuk. Second, this paper is unique in exploring the ability of equity features to curb equity holders’ incentive to engage in risk shifting behavior. Such an examination is necessary for the wake of the global financial crisis, for researchers and economists now agree that risk shifting must be a controlled behavior – and that one way of controlling risk shifting is by implementing the risk sharing feature of equity-based financing into the financial system.