Preprint Article Version 1 Preserved in Portico This version is not peer-reviewed

Econometrics Analysis of Financial Risk and Earnings Management in Dual System Banking for Asean-5 Countries

Version 1 : Received: 31 December 2022 / Approved: 3 January 2023 / Online: 3 January 2023 (07:19:41 CET)

How to cite: Ramadhanti, W.; Rahayu, S.M.; Muarrifah, S. Econometrics Analysis of Financial Risk and Earnings Management in Dual System Banking for Asean-5 Countries. Preprints 2023, 2023010006. https://doi.org/10.20944/preprints202301.0006.v1 Ramadhanti, W.; Rahayu, S.M.; Muarrifah, S. Econometrics Analysis of Financial Risk and Earnings Management in Dual System Banking for Asean-5 Countries. Preprints 2023, 2023010006. https://doi.org/10.20944/preprints202301.0006.v1

Abstract

Nowadays, many Muslim-majority countries have implemented a dual banking system, namely the sharia and conventional systems. The development of Islamic banks is to fulfill the Muslims' need for the existence of halal transactions in financial institutions. However, in some countries, it turns out that conventional banks still dominate the country's economy. Because of that, it is necessary to see whether there are differences in financial risk and Earnings management between Islamic and conventional banks. The samples are conventional and Islamic banks in Southeast Asia, analyzed by the purposive sampling method from 2010-2019. The analytical tool used is the statistical difference test and economometrics analysis using generalized least square (GLS) regression with panel data (time series and cross-sectional data). These models are intended to forecasting the macroeconomics effects in applying dual banking system in one country or region. The results using non parametrics means difference test showed that the first hypothesis is accepted It means that Earnings management in conventional banks is greater than in Islamic banks. The Random Model Effect (REM) for second and third hypotheses testing on Conventional banks shows the Bankruptcy Risk and NPL do not affect the dependent variable Earnings Management (LLP). While fixed effect model testing on Islamic banks, the second and third hypothesis testing is rejected. Therefor Islamic Banks the value of Bankruptcy Risk (z-score) and the value of Non-Performing Loans (NPL) do not affect Earnings management. It also means that hypothesis 2 and 3 are rejected both in conventional as well as Islamic Banking. Sensitivity analysis for conventional as well as Islamic banking altogether using fixed effect model shows that the second and third hypotheses show that the independent variables (Bankruptcy Risk and NPL) do not affect the dependent variable Earnings Management (LLP). These results can be concluded that Islamic bank are enganged in less earnings management. Therefor in the the long run there are still more research that should conduct in comparing dual banking system in one region.

Keywords

Financial distress; Dual system banking; Loan Loss Provission; forecasting; econometrics

Subject

Business, Economics and Management, Business and Management

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