Accounting standards and value relevance of accounting information: a comparative analysis between Islamic, conventional and hybrid banks

Purpose: The study investigates the value relevance of accounting information for Islamic, conventional and hybrid banks. It also investigates the moderation impact of IFRS adoption and AAOIFI mandatory adoption on value relevance of accounting information.

Design/methodology/approach: Using value relevance models, we run panel data regressions on 47 Islamic banks, 112 conventional banks and 42 hybrid banks (conventional banks with Islamic windows). Our study covers listed banks from 14 countries over the period 2010-2018.

Findings: Our paper offers three empirical evidences. First, we find that value relevance of accounting information is higher for Islamic banks, compared to conventional banks. Second, we find that IFRS framework strengthens the relevance of accounting information in Islamic banks, but we did not find the same for Hybrid banks. Third, we find that the mandatory adoption of AAOIFI accounting standards has a moderation effect on value relevance of accounting information for both Islamic banks and Hybrid banks. The robustness analysis shows that there is a significant contribution of compliance with Islamic Finance rules in IBs and HBs, which substantially reduces managers' opportunistic behavior to manage accounting information.

Practical implications: The study is useful for investors that consider the Islamic ethical practices to make their investment decisions as well as for the standards-setting bodies that focus on establishing accounting standards for the Islamic banking industry.

Originality/value: We contribute to value relevance literature by providing novel evidence on the value relevance in fully-fledged Islamic, fully-fledged conventional and Hybrid Banks. We also provide new evidence on the moderating role of IFRS and AAOIFI for the value relevance of accounting information.