Analyzing And Measuring The Impact Of Operational Risks On Earning Management: An Applied Study On Islamic Banks Listed On The Iraq Stock Exchange For The Period (2011-2021)

Shatha  Al-Khayyat; Ashurov Sharofiddin; Fahd Al-Shaghdari

Authors

Shatha Al-Khayyat PhD Student
Ashurov Sharofiddin Associate Professor
Fahd Al-Shaghdari Assistant Professor

Keywords:

Earnings Management , Accruals, Islamic Banks, Operational Risk, Shariah Principles

Abstract

This study investigates the extent of earnings management practiced by Islamic banks listed on the Iraq Stock Exchange from 2011 to 2021 and examines the impact of operational risks on this practice. Employing a quantitative approach with a deductive method, the study measures operational risks using the basic indicator method in accordance with Basel II standards, while earnings management is measured using the modified Jones model (1995) through discretionary accruals. In addition, regression analysis with Panel Data in the Eviews program is utilized to test the impact of operational risks on earnings management. The findings of the research indicate that Islamic banks in the sample engaged in earnings management throughout the study period except for 2017-2018. Furthermore, operational risks showed no significant impact on earnings management in the sampled Islamic banks. This study holds practical implications for regulators, managers, and employees in the banking industry, providing insights for regulatory authorities to enact laws that consider the unique aspects of Islamic banking and tighten supervision to curb earnings management practices. Additionally, it offers valuable information for Islamic banking stakeholders to enhance control over Shariah principles application and mitigate earnings management practices. The research contributes to the literature on Islamic banks, particularly in emerging financial markets, by addressing the gap in studies on the relationship between operational risks and earnings management. On the results, several recommendations are made, with the most significant being the necessity of the legislative and regulatory authorities overseeing Islamic banking to issue standards and regulations and strengthen supervision to ensure compliance with Islamic principles that contribute to limiting earnings management practices in Islamic banks. Furthermore, the study recommended enhancing the effectiveness of risk management supervision in Islamic banks.

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Author Biographies

Shatha Al-Khayyat , PhD Student

Institute of Islamic Banking and Finance, International Islamic University Malaysia (IIUM); Erbil Technology College, Iraq.

Ashurov Sharofiddin, Associate Professor

Institute of Islamic Banking and Finance, International Islamic University Malaysia (IIUM).

Fahd Al-Shaghdari, Assistant Professor

Institute of Islamic Banking and Finance, International Islamic University Malaysia (IIUM).

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