Earnings management determinants: Comparison between Islamic and Conventional Banks across the ASEAN region

Abstract

This study aims to analyze company characteristics as a determinant of conventional and Islamic bank earnings management in several ASEAN countries (Association of Southeast Asian Nations). The Multiple Discriminant Analysis was used to determine the differences between Islamic and Conventional Banks. This test was conducted based on Capital Adequacy Ratio, Income Before Tax and Interest, Non-Performing and Changing Loans, Company's Size, CPI, and Kurs in banks located in Indonesia, Malaysia, and Brunei Darussalam from 2014 to 2020. The data obtained from 40 banking entities were analyzed discriminatively. The results showed simultaneous differences between Capital Adequacy Ratio, Income Before Tax and Interest, Non-Performing and Changing Loans, Company's Size, CPI, and Kurs as determinants of earnings management between Islamic and conventional banks. It also showed that the Company's Size was the dominant variable determining the management differences. Based on Discriminant Analysis, there were significant differences in conventional and Islamic earnings management determinants. The Changing Loan variable showed the highest contribution in determining earnings management in Islamic banks. Overall, this study found that conventional banks dominated the Islamic system in practicing earnings management.