Working Paper in Islamic Economics and Finance No. 1106
The Extent of Information Disclosed in the Practice of Islamic Banking Annual Report in Malaysia
Nurul Huda Abdul Majid1 Kamarun Nisham Taufil Mohd2
College of Business, Universiti Utara Malaysia Sintok 06010 Kedah, Malaysia
Tel: +604-9286427 Fax: +604-9286406 E-mail: nurul@uum.edu.my
and
Abdul Ghafar Ismail3
Research Center for Islamic Economics and Finance School of Economics
Universiti Kebangsaan Malaysia Bangi, 43600 Selangor D.E., Malaysia
Tel: +603-8921 5760 Fax: +603-8921 5789 E-mail: agibab@ukm.my
This Draft, March 2011
1 Graduate student of Othman Yeop Abdullah, Graduate School of Business, College of Business, UU
2 Senior lecturer of Othman Yeop Abdullah, Graduate School of Business, College of Business, UUM
3 Professor of banking and financial economics, Universiti Kebangsaan Malaysia. He is also AmBank Group Resident Fellow for Perdana Leadership Foundation.
Bangi 43600, Selangor, Malaysia Fax: 603-89215789 http://www.ukm.my/ekonis E-mail: ekonis@pkrisc.cc.ukm.my
Bangi 43600, Selangor, Malaysia Fax: +603-89215789 http://www.ekonis-ukm.my
E-mail: ekonis@ukm.my
Abstract
Not much is known on the extent of information disclosed by Islamic banks. This paper is expected to provide some insights of the information voluntarily and mandatorily disclosed in annual report. The information is gathered from sample banks that cover both the Islamic banks (IB) and commercial banks offering Islamic banking services (IBS). From the information disclosed by both banks from 1997 to 2006, an index will develop. Our analysis shows that the information disclosed in both IB’s and IBS’s annual report are differently practiced. Hence, it leads to the following expectations: first, the current practices of both banks in disclosing the information voluntarily and mandatorily;
second, the assessment on the compliant level of both banks; and lastly, to suggest policy prescription that will emphasize the market discipline. The results suggest that legal origin matters in the practices and changes on the extent of information to be publicly disclosed through annual reports.
JEL classifications: M480, G2, K2
Keywords: disclosure, Islamic banks, legal origin
1. Introduction
Bank Negara Malaysia (BNM) is one of the regulatory agencies for financial institutions in Malaysia that provides their own guidelines to supervise and monitor prudently the Islamic banking operations. The guideline for disclosure purposes is provided under the Guidelines on the Specimen Financial Statements for Licensed Islamic Banks (GP8-i). This guideline was firstly published in year 2003 and it provides a standard format of financial reports for Licensed Islamic banks including disclosure requirements. While, for IBS, BNM requires all the banks that have Islamic windows to separately report their financial statement based on the GP8 revised guideline which was introduced in October 1996. Prior to that, BNM had made mandatory for IBS only to segregate the IBS operations, accounting books maintenance and procedures, however, there is no specific formats of reporting. Thus, regulations on financial reporting with respect to the presentation of financial statements only started in 1997. In 2004, both IBS and IB have to follow the accounting standards and the GP8-i in presenting their financial statement. The summary of the chronology event for financial disclosure can be seen in Appendix 1.
The changes of reporting regulations over time and the guideline for disclosure requirement that needs to be followed might lead to the following expectations: first, the current practices of both banks in disclosing the information voluntarily and mandatorily;
second, the assessment on the compliant level of both banks; and lastly, to suggest policy prescription that will emphasize the market discipline. Since the concept of market discipline depends on disclosure as one of its important elements, the extent to which Islamic banks disclosed their information also matters which motivate this study to be done.
Hence, the aim of this paper is to explore the extent of disclosure practices of both banks. The period of study covers from 1997 to 2006. The purpose of selecting these period is due to year 1997 is considered as an established years for the conventional banks after 5 years established their functions in the environment of dual banking systems. Thus, the comparable studies of the two banking institutions could be made to lead for our above expectations.
This paper is organized as follows. Section 2 reviews the agency-theoretic explanations of legal origins emphasizing the relations of disclosure, contracts and regulations. Section 3 discusses the methodology starting with constructions of index followed by descriptive analysis of the data. Section 4 elaborates on the extent of disclosure and its measurement. Section 4 discusses the results of this study. Finally, section 6 concludes the findings of this study.
2. Disclosure, Contract and Regulations
The conflicts faced by agents in trying to fulfill principles’ objectives have long been discussed in agency theory literatures (Jensen and Meckling, 1976). The theory suggests the contract as solution tools for the conflicts. However, contract itself is also argued to be incomplete hence involve major costs in dealing with problems related to its incomplete nature (Hart, 1995). In order to ensure agents’ problems are remedied and the rights of contracting parties are established, La Porta (1998) suggests the legal origin should be the factor. Since, the Islamic legal origin has been discussed widely especially in trying to
establish the link between agent and principal, disclosure in Islamic banks should extent not just in reducing conflicts but particularly emphasizing preventions of gharar.
However, the disclosure in Islamic banks should start with the premise of rules creation in disclosure. It is proposed that the rules need to be necessarily imposed considering the environment where contracts are bonded. Legal origin is should be the main guidance in prescribing the extent to which information should be disclosed by Islamic banks. Legal origin in this context is suggested to determine the rights of agents and contracting parties. Referring La Porta (1998,2001), their study do not considering legal origin of Islamic law. However, the studies accepted the relationship where rights and protections depend on legal origin. The study also argued agents rights need to be protected which determined by the quality of enforcement in a contract. In a nutshell, rights, protection of rights and enforcement quality, all these determined by legal system that being originated through the legal origin. The legal systems represent the regulation as enforced in one country. The agents in Islamic banking operations involve various parties depending on the contract they executes. In the situations where multiple relation severely involved in Islamic banking instruments, the extent of disclosure is expected to be different with the conventional one.
In this paper, we follow other studies such as Cooke (1989), Owusu-Ansah (1998, 2005), Depoers (2000) and suggest that construction of disclosure index as the closely assembled variables to be used as proxy for the extent of disclosure.
3. Methodology for Constructing the Disclosure Index In determining the items for disclosure, the following steps involved:
Step 1: Identification of items
This step will provide a general overview of the items, the level of information disclosed and the amount of details of the items.
Step 2: Listing of items and categorizing items into VD and RD
All items for one annual report are listed in one sheet starting from the earliest year. Moving to new sheet for the other banks for the same year, each additional items is noted. Banks with the highest numbers of items will be the based index. Items in the based index are further assigned to which regulations each of the items are referred to. Items does not falls under those specified regulations falls under voluntary items (VD) items while the former is regulated items (RD).
Step 3: Locating items to Index
The based index after considering regulation is the checklists in which annual report of the sample banks are to be reviewed to allocate scores. The index need to be separated from the Islamic banks and conventional (IBS) due to:- (i) both the banks are subjected to specific
regulations; 2) the regulations are effective at different period of time ; 3) not all the information applies to both IB and IBS in term of reporting needs.
The number of indices4 and annual reports used in this study are summarized in Table 1. The DI_IB and DI_IBS of each IB and IBS respective samples is followed by the different set of years are reported in column three. Such different set of years are due to various changes in regulations happens in the respective years. The number of annual report for each index make a total of 95 samples of annual report uses in this study (Column 4). The items that are listed are different from one to another index (see Column 5) as a result of different practices over the period and changes of regulations.
Table I: Disclosure Index, number of items and annual report based on years
Notes: DI_IB : Full-fledged Islamic banks Index/IB index DI_IBS: Islamic windows/IBS index
Table II presents the descriptive statistics of the items, number of VD and RD and changes between index.
Overall, items disclosed by IB and IBS increases from 1997 to 2006. Items distributions for IB index has increased from 166 in 1997 to 225 in 2006. The changes ranged from 1% to 28%. For IBS, the items also increased by 48% but decreased slightly during 2006, from 127 in 2003 to 122 in 2006. The percentages change decreased by 4%.
The largest changes of distribution (48%) is the changes of IBS items from index 1997 to 2003 following the increased in items disclosed from 86 to 127 items. In 2006, both IB and IBS items recorded smaller changes, 1% and -4% respectively. Referring to VD and RD changes between index, there is an inverse relationship between both items especially referring to year 2003 and 2004. The trends might be due to the following reason. First, regulatory changes and second, composition changes of the samples. The first accounting standards, FRSi-1 (or MASBi-1 during year 2003) changed most VD in DI_IB1997 to RD which results in an increased RD and decreased VD in 2003. Similar changes are also observed in IBS for that particular year as FRSi-1 is also effective to IBS. Further in 2004, the impact of a mandatory guideline which is firstly published specific to IB resulted in major increases in RD items, about 33% in 2004. Thus, regulation is expected to play an important role in to the disclosure practiced especially with regards to the items mandatorily required to be disclosed in the annual report. We also expect, changes that is also happened in 2006 (VD of IB increased 50% ) due to the
44
The disclosure index is available upon a request from the first author
Samples Index Years No. of annual
report analysed
Items Islamic banks (IB) DI_IB1997
DI_IB2003 DI_IB2004 DI_IB2006
1997-2002 2003 2004-2005 2006
9 2 5 6
166 173 222 225 Conventional banks
(IBS)
DI_IBS 1997 DI_IBS 2003 DI_IBS 2006
1997-2002 2003-2005 2006
47 22 4
86 127 122 95
addition of new IB subsidiary. Those new banks in IB samples composition are probably the one (IBS in the year before) who disclose more VD items. Thus, the practice of disclosing more VD consistently applied when they falls under IB categories.
Table II: Summary of Items Distributions by Index
Disclosure Index Items Changes*(%) VD Changes(%) RD Changes(%)
Panel a : Items by categories Islamic Banks
DI_IB1997 166 32 134
DI_IB2003 173 4 17 -47 156 16
DI_IB2004 222 28 14 -18 208 33
DI_IB2006 225 1 21 50 204 -2
Islamic Banking Schemes
DI_IBS1997 86 20 66
DI_IBS2003 127 48 16 -20 111 68
DI_IBS2006 122 -4 8 -50 114 3
Based on the numbers of items and the changes between index, mean differences is to be compared. Result of the independent t tests of mean differences is presented in Table III.
Panel A of table III presents result of mean differences of items between IB and IBS.
Panel B is the results of mean differences between index of IB and index of IBS. Both result in panel a and b shows there are significant differences between IB and IBS items in index. Thus, specific regulations and different information which affects items of IB and IBS need to be measured through constructing specific index to both the IB and IBS.
Further, due to items for both are different in their annual report, changes in specific years are found to be different. Results of mean difference proves this arguments when comparing the index of 1997 between IB and IBS (same to index 2006).
Panel C reports results of mean differences among IB index while Panel D reports comparisons among IBS index. The tests of significant different on DI_IB is for 1997 vs 2003, 2003 vs2004 and 2004vs2006. The tests of significant different on DI_IBS is for 1997vs2003 and 2003vs2006. All those tests are separately done to VD and RD items. It shows the that the VD is significant in IB index of 2003vs2004. For IBS, there is no significant different between VD in the IBS index but RD, the result shows there is a significant diferrent between each IBS index. Hence, decisions in constructing specifics index to IB and IBS (DI_IB and DI_IBS) and also by selecting specifics years representing major changes in regulations (1997,2003,2004 and 2006) are at least significant either for the VD or RD items.
Table III: Results of Test of mean differences
Bank samples Obs Mean T tests P-Value
Panel a: Items between IB and IBS
VD Items IB
IBS
22 73
10.77 3.87
8.1495 0.0000***
RD Items IB
IBS
22 73
61.83 135.36
15.274 0.0000***
Table III (cont’d)
Panel b: VD and RD items between IB and IBS index
VD Items DI_IB 1997
DI_IBS1997 9 47
14.78 3.91
17.43 0.0000***
RD Items DI_IB2006
DI_IBS2006 9 47
101.78 52.19
6.307 0.0000***
Panel c: Items between DI_IB (IB index) VD for DI_IB DI_IB1997
DI_IB2003 9 2
15.55 13.50
0.603 0.560 DI_IB2003
DI_IB2004 2 5
13.5 5
2.7744 0.040**
DI_IB2004 DI_IB2006
5 6
5 7
1.183 0.267 DI_IB2006
DI_IBS2006 6 4
165.5 89.00
18.034 0.019**
RD for DI_IB DI_IB1997 DI_IB2003
9 2
101.00 135.5
5.556 0.049**
DI_IB2003 DI_IB2004
2 5
135.5 161.00
2.152 0.084*
DI_IB2004 DI_IB2006
5 6
161.00 165.50
0.642 0.537 Panel d: Items between DI_IBS (IBS index)
VD for DI_IBS DI_IBS1997 DI_IBS2003
47 22
3.87 4.04
0.279 0.781 DI_IBS2003
DI_IBS2006 22 4
4.04 3.00
1.010 0.322 RD items for IBS DI_IBS1997
DI_IBS2003 47 22
52.23 77.40
12.675 0.000***
DI_IBS2003 DI_IBS2006
22 4
77.4 89
2.509 0.019**
Notes: Tests between other than 1997 and 2006 were not done between DI_IB and DI_IBS as the set of years are different to be compared. For example DI_IB 2003 covered annual report of year 2003 while DI_IBS covered annual report of year 2003 to 2005. Different in number of observations requires care to be taken in interpreting the results.
Apart from t-test, where relevant, the equivalent non-parametric technique of Mann-Whitney U-test was also with both mean and mean rank is analysed. The mean ranks result is the non-parametric versions of t-tests in a condition where assumptions of parametric test is not fulfilled, however both result is consistent. Thus the presentationsof t-test result is considered adequate for our discussions.
4. Measuring Disclosure Extent
The extent of disclosure by the sample banks is measured by scores using dichotomous procedures as follows, i.e., we find: (a) the total numbers of items disclosed; (b) total maximum numbers of items applicable. Both can be calculated from the following equations:-
n TDi = ∑ di
i =1 and,
m
MSi = ∑ Di
i =1 where,
TD = Total numbers of items disclosed
MS = Total maximum numbers of items applicable
d = scores of item disclose, 1 (disclosed ) and 0 (not disclosed ) D = scores for each applicable items, 1 for each items
n = the number of applicable items which the company is expected to disclose m = the number of applicable items
For applicable item, where an item is not disclose due to it is not applicable, it is concluded that the item is not relevant to the index. Therefore it is not expected to disclose and not calculated as the number of applicable items. On the other hand, if an item is applicable, stated somewhere in the annual report, but has not been disclosed, the item falls under the item which is applicable (m), given scores of 1 for D for the total maximum numbers of items applicable and given 0 scores for item disclosed (d).
The relative level of disclosure is measured by a score (SCORE_TD) that can be calculated by dividing the total disclosure (TD) by the maximum score of aggregated disclosure (MAD).
Score_TDi = TD i/MAD i
Score of the above is further, devided to two categories which are measured differently. There are SCORE_VD and SCORE_RD as indicated in Table IV.
Table IV: Formula of Score
Notes; TD is the score of overall disclosure (aggregate) without differentiate the items to VD and RD
5. Analysis and Discussions of Findings
The analysis of descriptive statistics of the score is presented in table V. Panel A reports the analysis by type of disclosure. Panel B and C are on the analysis specific to the IB and IBS. There exists a slightly dispersed distribution for Score VD and the extreme outliers shows to be located towards the higher scores . (skewed to the right) The minimum and maximum value is 0 and 1 respectively. Hence, SCORE_VD mostly located at the lower part of the scale. For SCORE_RD it implies that the practiced are towards full disclosure, with mean 0.8854 and higher. Both the distribution is skewed however at higher scale for SCORE_RD while SCORE_VD at lower scale. The overall disclosure to specific IB and IBS (Score_TD (IB) and (IBS) shows IBS score mostly located at higher scale while IB not achieving that point.
To compare specific type of disclosure for IB and IBS, panel b and c reported that IB banks have mean and median higher than IBS for SCORE_VD ( mean: 0.6001;
median:0.6178).The standard deviation are much smaller in SCORE_RD. however SCORE_VD is a little bit higher in IB compared to IBS. This implies that the value of SCORE_VD, even though higher than IBS, is not consistent among IB as the standard deviation shows the variation is higher than IBS. The minimum score for all type of disclosure is lower in IBS. The maximum SCORE_VD value for IB is 1 compared to 0.7 for IBS, meanwhile IBS reports a maximum of 1 in SCORE_RD. From this finding, IBS compliance level is much higher while the practice of disclosing voluntary items falls on IB. The analysis of skewness value reports that SCORE_VD results is negatively skewed for IB while positively skewed for IBS. Thus IB distribution of SCORE_VD is heavily concentrated at higher scale. On the other hand, while IB registers a lower SCORE_RD, SCORE_RD for IBS is heavily concentrated at a higher scale. This result could suggest that the extent of disclosing SCORE_VD items are more among IB while SCORE_RD items, are more among IBS.
Voluntary Disclosures(VD) Regulated Disclosures (RD) Total overall disclosure (TD) n
VDit = ∑ dit i =1
n RDit = ∑ dit i =1
n
TDit = ∑dit i =1
n MVDit = ∑ Dit
i =1
n MRDit = ∑ Dit i =1
n
MADit = ∑ Dit i =1
SCORE_VD it = VD it/MVD it SCORE_RD it = RD it/MRD it Score_TD it = TAD it/MAD it
Table V: Descriptive statistics of disclosure extent
Type obs(n) Mean Median SD Min. Max. Skew. Kurt.
Panel A: Overall Disclosure
SCORE_VD 95 0.3869 0.3333 0.2146 0.0000 1.0000 0.9130 0.3660 SCORE_RD 95 0.8854 0.8947 0.0641 0.7033 1.0000 -0.6270 0.1700 Score_TD 95 0.8166 0.8195 0.0664 0.6132 0.9669 -0.6730 0.5830 Score_TD(IB) 22 0.8602 0.8514 0.0418 0.8030 0.9669 0.9190 0.4170 Score_TD(IBS) 73 0.8035 0.8088 0.0670 0.6132 0.9211 -0.6220 0.1460
Type obs(n) Mean Median SD Min. Max. Skew. Kurt.
Panel B: Islamic Banks (IB)
SCORE_VD 22 0.6001 0.6178 0.2613 0.1765 1.0000 -0.2470 -1.1700 SCORE_RD 22 0.8832 0.8760 0.0511 0.7899 0.9781 0.2060 -0.648
Table V (Cont’d)
Panel C: Islamic Banking Scheme (IBS)
SCORE_VD 73 0.3226 0.3000 0.1488 0.0000 0.7000 0.4790 -0.0250 SCORE_RD 73 0.8860 0.8965 0.0678 0.7033 1.0000 -0.7330 0.1550
Based on the extent of voluntary and regulated disclosure, mean differences between IB and IBS results is to be compared which is presented in Table VI. The findings observed in Table VI indicate mean score for IB is higher than IBS for VD. The tests show that there are statistical significant difference between IB and IBS where SCORE_VD in IB is more than IBS. For SCORE_RD, there is no significant difference of SCORE_RD between IB and IBS. Thus, disclosure extent of RD is not statistically lower for IB than IBS.
Table VI: Results of Test of mean differences
Bank samples Obs Mean T tests P-Value
Panel a: Score between IB and IBS
SCORE_VD IB 22 0.6001 4.7550 0.000***
IBS 73 0.3226
SCORE_RD IB 22 0.8832 0.1830 0.855
IBS 73 0.8860
To compare the disclosure practice over 10 years period, similar descriptive statistics of disclosure for SCORE_VD and SCORE_RD are reported. Results of the movements are presented in Table VII as attached in Appendix Panel A and B separately presents SCORE_VD and SCORE_RD for the IB and IBS respectively. Analysis
descriptive over time for IB could only reported starting year 2000 as only one IB is operated during 1997 to 1999. Starting year 2000, it is reported that IB banks SCORE_RD somehow looks stable, different with SCORE_VD, the trend is unpredictable. A sharp falls in 2002, as the mean reduced from 0.7941 to 0.2727 and after that back to increase. The variation of scores is also become larger approaching year 2005. For IBS, the SCORE_VD fluctuates since 1997 where the highest score is during year 2002. The SCORE_RD maintained approximately at 0.8035 to 0.9262. The variations of score are also lesser compared to SCORE_VD. The SCORE_RD also looks different in the distributions as it is skewed towards lower scale in 2004 and 2006. It implies that at this point of time, disclosure score are mostly located at the lower scale.
Comparing the Score through the index, in general SCORE_VD among the DI_IB reports the lowest mean in DI_IB2004. Similarly For IBS, DI_IBS2003 reports the lowest mean for both SCORE_RD and SCORE_VD. Hence we could see regulation that is enforced in 2003 and 2004 taken their role in changing the practice of disclosing information. SCORE_VD is expected to falls as regulations changed most VD to RD as being shown in the descriptive analysis of items in previous section. However, the finding is unexpected regarding the lowest SCORE_RD in DI_IBS2003 as the accounting standard at that time is firstly enforced. On the other hand, both DI_IB 1997 and DI_IBS1997 show the scores is at maximum level of 1. It probably due to most items at that time disclosed based on management discretions where disclosure regulations is not establish. Thus both IB and IBS try to signals their better reporting behavior at that time.
Such practice could also be shown through the skewness value of negative (DI_IB1997: - 0.0564, DI_IBS: -0.9494). This indicates most scores are at the higher scale. This practice are applies to IB and IBS in their practice of SCORE_VD. However, the SCORE_RD are in inverse directions in IB referring DI_IB1997 of positively skewed value. Meaning, most scores are at the lower scale at that time implying lower compliant level. Such results seems in consistent where from the VD practices of IB, it shows better extent while not for RD. For IBS, consistent findings were found where the practices are better to both, RD and VD. To examined further based on the scores as provided, the tests of significant different similarly performed. Our aims are to test any significant different of the banks’ practices between the IB and IBS.
Table VIII presents result of mean differences between IB and IBS. The score is analysed by year and by index to present the significant different of scores over time. It is due to index is developed based on the years where major changes of regulations happened. However, as a results of small observations of IB during 1997 to 2006 (n is 1 in 1997 to 1999, n < 3 between 2000 to 2005 ) only tests of differences of index could be provided. Mean different between years are only summarized for IBS (see Panel C) where we find the significant differences in practice during year 2002 to 2003, and 2003 to 2004 (significant at 1%, 2002 and 2003, at 10% 2003 and 2004). Probably due to transitions period of adopting the accounting standards and BNM guidelines that is firstly practiced during 2003 and 2004 respectively in Islamic banking annual report.
Results also show the practices between 1997 and 1998 is statistically significant at 1% level, thus indicating SCORE_VD changed significantly. Probably, the first revised GP8 guidelines ever enforced on IBS during 1997 seems only fully adopted by the IBS banks in 1998. Presumably, banks at that time not ready to comply at the first year of its enforcement. Based on tests of differences on index, The SCORE_VD for IB samples,
shows there is a significant different only between index 2003 and 2004. The SCORE_RD is only significant between index 2003 and 2006. Thus, it can be seen that, IBS practiced in disclosing VD and RD items changed accordingly with new regulations which happened during 2003, 2004 and 2006.
7. Conclusions
In general, changes of reporting regulations over time produce significant findings in this context of disclosure studies. Due to specifics approaches needed in measuring the extent of information disclosed by Islamic banking industries, especially during the period of infancy, the measurement method is carefully selected that is considered unique in the study of disclosure. Meanwhile most studies on disclosure would drop data on disclosure practices by banking industry for methodological purposes. Hence, the approach done in this study by constructing an index that needs to be carefully reviewed with respect to the new regulations that is continuously enforced, the changing practices by the banks and various effective period of such regulation due to a period of ten years selected, need to be catered effectively especially using the index as a measurement. However, the study that is done without zero constraint is believed could provide some insights on the practice of disclosure in the Islamic banking industry that is considered as highly regulated industry (banking), highly developing industry (Islamic banking) and in the country that is known to be successful in adopting dual-banking industries.
Table VIII: Results of Test of mean differences
Bank samples Obs Mean T tests P-Value
Panel a: SCORE_VD between index
IB index DI_IB1997 9 0.8330 0.481 0.642
DI_IB2003 2 0.7941
DI_IB2003 2 0.7941 3.751 0.013**
DI_IB2004 5 0.3399
DI_IB2004 5 0.3399 0.696 0.504
DI_IB2006 6 0.4030
IBS index DI_IBS1997 47 0.3402 1.939 0.057**
DI_IBS2003 22 0.2752
Table VIII (cont’d)
Bank samples Obs Mean T tests P-Value
IBS index DI_IBS2003 22 0.2752 1.570 0.129
DI_IBS2006 4 0.3750
Panel b: SCORE_RD between Index
IB index DI_IB1997 9 0.8476 1.481 0.176
DI_IB2003 2 09061
DI_IB2003 2 09061 0.293 0.781
DI_IB2004 5 0.8982
DI_IB2004 5 0.8623 0.848 0.419
DI_IB2006 6 0.9163
IBS index DI_IBS1997 47 0.8295 1.8850 0.1010
DI_IBS2003 22 0.9097
DI_IBS2003 22 0.8526 2.2890 0.0510*
DI_IBS2006 4 0.9244
Panel c: Score over time for selected IBS
VD 1997 8 0.1136 4.670 0.000***
1998 8 0.3061
VD 2002 8 0.4799 3.8910 0.002***
2003 8 0.2245
RD 2002 8 0..9262 3.4240 0.004***
2003 8 0.8034
2003
2004
8 8
0.8034 0.8673
2.0160 0.063*
Panel d: Score between IB and IBS for selected years
SCORE_VD - 2000 IB 2 0.7929 4.551 0.002**
IBS 8 0.3751
SCORE_VD - 2001 IB 2 0.8437 3.469 0.008***
IBS 8 0.4163
SCORE_VD - 2002 IB 2 0.8055 2.435 0.041**
IBS 8 0.4799
SCORE_VD - 2003 IB 2 0.7941 9.5370 0.0008**
IBS 8 0.2244 0.4799
SCORE_RD - 2003 IB 2 0.9061 2.598 0.067*
IBS 8 0.8034
SCORE_RD - 2006 IB 6 0.9163 1.9590 0.086*
IBS 4 0.8662
Overall Score (TD)
2003 IB 2 0.8974 3.2060 0.013**
IBS 8 0.7198
*, ** and *** denotes significant level at 1%,5% and 10% respectively%
References
Bank Negara Malaysia. (1996). Garispanduan Contoh Penyata Kewangan Untuk Industri Perbankan “GP8” [Guidelines on Example of Financial Reporting for Banking Industry]. (BNM Guidelines No. 2201/015/4/1/KA).
Bank Negara Malaysia. (2005). Guidelines on the Specimen Financial Statements for Licensed Islamic Banks (GP8-i)
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Accounting and Business Research 19(74), 113-124
Depoers, F. (2000). A cost-benefit analysis of voluntary disclosure: Some empirical evidence from French listed companies. The European Accounting Review, 9(2), 245-263
Hart, O. (1995). Corporate Governance: Some theory and implications. The Economic Journal, 105, 678-689
International Accounting Standards (IASs)
Jensen, M.C., Meckling, M.H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 20
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Table VII
Descriptice Statistics of Score over time and index
Type year n Mean Median SD Min. Max Skew Kurt.
Panel A: Disclosure over time by IB
SCORE_VD 2000 2 0.7928 0.7928 0.0101 0.7857 0.8000 - -
2001 2 0.8437 0.8437 0.2209 0.6875 1.000 - -
2002 2 0.8055 0.8055 0.0174 0.6800 0.9310 - -
2003 2 0.7941 0.7941 0.0415 0.7647 0.8235 - -
2004 2 0.2727 0.2727 0.1285 0.1818 0.3638 - -
2005 3 0.3847 0.4167 0.1889 0.1818 0.5556 -0.7400 -
2006 6 0.4030 0.4474 0.1406 0.1765 0.5263 -0.9494 -0.4168
SCORE_RD 2000 2 0.8296 0.8296 0.0093 0.8230 0.8361 - -
2001 2 0.8526 0.8526 0.0215 0.8374 0.8678 - -
2002 2 0.9096 0.9096 0.0931 0.8438 0.9754 - -
2003 2 0.9061 0.9061 0.0392 0.8784 0.9338 - -
2004 2 0.8818 0.8818 0.0250 0.8641 0.8995 - -
2005 3 0.9092 0.9167 0.0325 0.8736 0.9372 -0.9880
2006 6 0.9163 0.9117 0.0389 0.8670 0.9781 0.5500 0.2159
Panel B: Disclosure over time by IBS
SCORE_VD 1997 7 0.1137 0.1250 0.0532 0.0000 0.1667 -2.0000 4.8355
1998 8 0.3062 0.3030 0.0966 0.1818 0.4615 0.2293 -0.9465
1999 8 0.3222 0.2864 0.1033 0.2222 0.5000 0.9835 -0.3215
2000 8 0.3751 0.3333 0.1241 0.2222 0.6154 1.1565 1.1262
2001 8 0.4163 0.3902 0.1442 0.2222 0.6250 0.4714 -0.8326
2002 8 0.4799 0.4853 0.1679 0.1818 0.7000 -0.5762 -0.0003
2003 8 0.2245 0.2488 0.0792 0.0667 0.3125 -1.1771 1.2940
16
Table VII (cont’d)
year n n Mean Median SD Min Max
Skew Kurt.
Panel B : Disclosure over time by IBS (cont’d)
SCORE_VD 2004 8 0.3148 0.2896 0.1537 0.0667 0.6000 0.4166 1.5622
2005 6 0.2903 0.2896 0.0651 0.1875 0.3750 -0.4494 0.2696
2006 4 0.3750 0.3750 0.1443 0.2500 0.5000 0.0000 -6.0000
SCORE_RD 1997 7 0.8516 0.8596 0.0754 0.7500 0.9483 -0.0974 -1.8476
1998 8 0.8871 0.9045 0.0694 0.7667 0.9649 -0.8823 -0.2785
1999 8 0.9081 0.9209 0.0560 0.8214 0.9649 -0.7534 -0.8879
2000 8 0.9097 0.9145 0.0583 0.8246 0.9841 -0.4577 -0.9238
2001 8 0.9244 0.9399 0.0416 0.8475 0.9667 -0.9133 -0.0360
2002 8 0.9262 0.9316 0.0627 0.8033 1.0000 -0.9939 1.1847
2003 8 0.8035 0.8340 0.0797 0.7033 0.8854 -0.4133 -2.1212
2004 8 0.8673 0.8564 0.0409 0.8202 0.9368 0.6103 -0.8374
2005 6 0.9073 0.9131 0.0522 0.8222 0.9583 -0.7932 -0.0881
2006 4 0.8662 0.8595 0.0408 0.8252 0.9208 0.8641 0.7025
SCORE_VD DI_IB1997 9 0.8331 0.8235 0.1088 0.6800 1.0000 -0.0564 -0.8670
DI_IB2003 2 0.7941 0.7941 0.0416 0.7647 0.8235 Na Na
DI_IB2004 5 0.3399 0.3636 0.1605 0.1818 0.5556 0.2621 -1.4944
DI_IB2006 6 0.4030 0.4474 0.1406 0.1765 0.5263 -0.9494 -0.4168
DI_IBS1997 47 0.3402 0.3333 0.1609 0.0000 0.7000 0.3210 -3.3840
Table VII (cont’d)
year n n Mean Median SD Min Max
Skew Kurt.
Panel D : : Disclosure index of SCORE_RD
DI_IBS2003 22 0.2753 0.2667 0.1125 0.0667 0.6000 0.6580 2.7260
DI_IBS2006 6 0.3750 0.3750 0.1443 0.2500 0.5000 0.0000 -6.0000
SCORE_RD DI_IB1997 9 0.8476 0.8362 0.0522 0.7899 09754 2.090 5.4220
DI_IB2003 2 0.9061 0.9061 0.0391 0.8784 0.9338 NA NA
DI_IB2004 5 0.8982 0.8995 0.0301 0.8641 0.9372 0.1660 -1.7141
DI_IB2006 6 0.9163 0.9117 0.0389 0.8670 0.9781 0.5500 0.2159
DI_IBS1997 47 0.9022 0.9123 0.0692 0.7500 1.000 -0.7530 -3.110
DI_IBS2003 22 0.8550 0.8614 0.0719 0.7033 0.9583 -0.8130 0.3740
DI_IBS2006 6 0.8662 0.8594 0.0408 0.8252 0.9208 0.8641 0.7030
APPENDIX
List of regulations effective to IBS and Islamic banks
Year Guidelines Effective to Applied to this study
1988 GP8 Conventional banks
(include BIMB)
Annual Report 1997 onwards
1993 SPTF Guidelines 1993 IBS banks Annual Report 1997 onwards
1994 BNM/GP8 (Revised 1994) BIMB and IBS banks Annual Report 1997 onwards
1996 BNM/GP8 (Revised 1996) IBS banks Annual Report 1997 onwards
2002 MASBi-1 IB and IBS banks Annual report 2003 onwards
2003 GP8-i Licensed Islamic banks Annual Report 2004 onwards
2004 GP8-revised IBS banks Annual Report 2006
2005 GP8-I revised 2005 Licensed Islamic banks Annual Report 2006
