• Tiada Hasil Ditemukan



Academic year: 2022


Tunjuk Lagi ( halaman)







A thesis submitted in fulfilment of the requirement for the degree of Doctor of Philosophy in Islamic Banking and


IIUM Institute of Islamic Banking and Finance

August 2018




Diverse attempts have been made to analyse the impact of financial disclosure on the stock returns volatility of banking sector. In light of theoretical and empirical results available in this domain, two contradictory views have emerged. Some researchers are of the opinion that financial disclosure will enhance the banking stock returns stability since it will increase the trust between the shareholders, while others have opposite viewpoint and they argue that enhancing the financial disclosure will lead to inject more data into the market which will be misunderstood by the investors and therefore it will increase the stock return volatility. This thesis provides empirical evidence of a linear relationship between financial disclosure and stock returns volatility, which shed light on the conflicting results of previous theoretical and experimental studies. In our study, we are exploring the financial disclosure levels of Islamic and conventional banks in five Gulf Cooperation Council (GCC) countries which have dual banking system with a significant share of Islamic banking for the period of 2005 until 2015 and find which banks is more transparent to the market. Furthermore, we are studying the disclosure – stock return volatility relationship and we are exploring whether or not bank types affect this relationship and which banks have higher stock return volatility effects. Using fixed or random effect technique on panel data covering the GCC countries with dual banking system, this thesis finds and affirms that the disclosure levels in conventional banks were better than Islamic banks in GCC region during the studied period, but interestingly at the same time we find that the gap between the financial disclosure levels in these two banking system was decreased from 13.96% in 2005 to become 5.51% in 2015, and this indicate the efforts and enhancement done to improve Islamic banking system during the last few years. Additionally, the empirical finding confirms that increasing the financial disclosure level will lead to increase the stock returns volatility for both banking system in a different ratio. Analysis of the differences among Islamic and conventional banks verified that the effect of the financial disclosure will be higher for stock returns volatility of Islamic banks. These results have significant policy implications, as it suggests that policymakers should encourage the banks to have clear guidance on the required information to be disclosed on multiple criteria. Instead of recommending for injecting more information in the market, the focus should be made on the dissemination of reliable, adequate, relevant, and timely information. Furthermore, results derived in this thesis have direct implications for managers and policymakers in GCC banking system, who can use this information to design better disclosure policies to influence investors.



صخلم ثحبلا


ءارجإ تم لا

ديدع رثأ ليلحتل تلاوالمحا نم حاصفلإا

ليالما في تابلقت دئاوع فراصلما عاطق في مهسلأا

ماع لكشب ةيرظنلا جئاتنلا ءوض فيو .

ةيلمعلاو ترهظ دقف ،لالمجا اذه في ةرفوتلما

ٍرظن اتهجو .ناتضقانتم

ىوتسم ينستح نأ ينثحابلا نم لولأا قيرفلا ىري ثيح حاصفلإا

ليالما دؤيس رارقتسا لىإ ي دئاوع


يفرصلما ة،

.ينهماسلما ينب ةقثلا ديزت انهإ ثيح كلذ سكع نياثلا قيرفلا ىري امنيب

لوقي ثيح ، نإ


ىوتسم لإا

دؤيس ليالما حاصف خض لىإ ي

قوسلل تامولعلما نم ديزم

، لبق نم اهمهف ءاسي فوس تيلاو

،نيرمثتسلما هيلع ًءانبو

دؤت فوس مهسلأا دئاوع تابلقت ةدياز لىإ ي

دقت . ًليلد ةحورطلأا هذه م ًا يلمع

ينب ةيطخ ةقلع دوجو ىلع حاصفلإا

ليالما تابلقتو دئاوع

طلس اهرودب تيلاو ،مهسلأا ت

ىلع ءوضلا

.ةقباسلا ةيلمعلاو ةيرظنلا تاساردلل ةبراضتلما جئاتنلا تم دقف

ت لإا تياوتسم ةسارد فراصملل ليالما حاصف

ماظن كلتتم تيلا يجيللخا نواعتلا سلمج لودل ةيملسلإاو ةيديلقتلا ًا

يفرصم ًا جودزم ًا ةيملسلإا فراصمللو

ةيربك ةصح اهيف ،

ةترفلا للخ يماع نم ةدتملما


،م تىحو 2015

،م اهيدل فراصلما يأ دايجإ و

.قوسلل بركأ ةيفافش تياوتسم ،كلذ ىلع ةولعو

تم دقف ت لعلا ةسارد لإا ينب ةق

دئاوع تابلقتو حاصف

نوكيس امهنم يأو ،فراصلما يعون ينب ةقلعلا هذه في فلتخا يأ كانه ناك اذإ ام في دايجإو مهسلأا بركأ يرثتأ هيدل في

.مهسلأا دئاوع تابلقت تباثلا يرثأتلا ةينقت مادختسبا

أو يرغتلما في ماظنلا لمشت تناايب

جودزلما فيرصلما تدجو دقف ،يحيللخا نواعتلا سلمج لود في

لإا تياوتسم نأ ةساردلا هذه تدكأو حاصف

لا كونبلل ليالما لإا تياوتسم نم لضفأ تناك ةيديلقت

خ ةيملسلإا اتهيرظنل ليالما حاصف ،ةسوردلما ةترفلا لل

نأ هابتنلل يرثلما نم نكلو ةوجفلا

ينب تياوتسم حاصفلإا

ليالما في هذه ةيفرصلما ةمظنلأا دق

ضفنخا نم

13.96 ٪

في ماع 2005

،م حبصيل 5.51 ٪ في ماع 2015 م اذهو ، يرشي لىإ دوهلجا ةلوذبلما ينسحتل

ماظنلا فيرصلما يملسلإا للخ

تاونسلا ةليلقلا

.ةيضالما كؤت ،كلذ لىإ ةفاضلإبا

ةدياز نأ ةيلمعلا جئاتنلا د

وتسم تيا حاصفلإا ليالما

دؤيس تابلقت ةدياز لىإ ي دئاوع

.ةفلتمخ بسنب ةيفرصلما ةمظنلأا لكل مهسلأا

حاصفلإا يرثتأ نأ ىلع ةيديلقتلاو ةيملسلإا كونبلا ينب قورفلا ليلتح دكأ ثيح ليالما

نوكيس بركأ


اعسأ تابلقتل رثاآ جئاتنلا هذلهو .ةيملسلإا كونبلا في مهسلأا ر

ة مهم قبطلما تاسايسلا في

حترقت ثيح ،ة

جشي نأ تامولعلما نأشب ةقيقدو ةحضاو تاداشرإ ىلع لوصلحا في فراصلما عيجم رارقلا باحصأ ع

ينعتي تيلا ةبولطلما ًءانب اهنع حاصف لإا

ةددعتم يرياعم ىلع

، ثيح تامولعم رشن ىلع زيكترلا يغبني ،ةقوثوم

بسانلما تقولا فيو ،ةمئلم ،ةيفاك





The thesis of Tawfik Azrak has been approved by the following:


Buerhan Saiti Supervisor


Engku Rabiah Adawiah Bt Engku Ali Co-Supervisor


Adewale Abideen Adeyemi Internal Examiner


Abdul Ghafar Ismail External Examiner


Amir Shaharuddin External Examiner


Radwan Jamal Yousef Elatrash Chairman




I hereby declare that this thesis is the result of my own investigations, except where otherwise stated. I also declare that it has not been previously or concurrently submitted as a whole for any other degrees at IIUM or other institutions.

Tawfik Azrak

Signature ... Date ...








I declare that the copyright holders of this thesis are jointly owned by the student and IIUM.

Copyright © 2017 Tawfik Azrak and International Islamic University Malaysia. All rights reserved.

No part of this unpublished research may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without prior written permission of the copyright holder except as provided below

1. Any material contained in or derived from this unpublished research may only be used by others in their writing with due


2. IIUM or its library will have the right to make and transmit copies (print or electronic) for institutional and academic purposes.

3. The IIUM library will have the right to make, store in a retrieved system and supply copies of this unpublished research if requested by other universities and research libraries.

By signing this form, I acknowledged that I have read and understand the IIUM Intellectual Property Right and Commercialization policy.

Affirmed by Tawfik Azrak

……..……….. ………..

Signature Date




This Thesis is dedicated to my beloved parents; Khaldoun and Hazami for their endless love, support and encouragement




First and foremost, I thank the Almighty God for giving me the opportunity and the ability to accomplish this work. Without Allah’s help and guidance, I would not have reached to this point.

I would like to express my deep gratitude and appreciation to my supervisors Assoc. Prof. Dr. Buerhan Saiti and Prof. Dr. Engku Rabiah Adawiah for their endless guidance and encouragement. I want also to extend my grateful thanks to the committee members for their great suggestions and generous support.

At this stage of my life I deem obligatory to raise Allah’s Mercy upon my parents for their unlimited support and encouragement for continuing my education. I record here my deepest gratitude to my beloved wife Wafaa for her constant patience and support. Finally, to my brothers Saad and Majed and my sister Rama, my relatives and friends who have directly or indirectly contributed to this work I say Jazakumullaahu khayran.




Abstract ... ii

Abstract in Arabic ... iii

Approval Page ... iv

Declaration ... v

Copyright ... vi

Dedication ... vii

Acknowledgements ... viii

List of Tables ... xi

List of Figures ... xiii

List of Abbreviation ... xiv


1.1 Background of the Study ... 1

1.2 Problem Statement ... 5

1.3 Research Objectives ... 8

1.4 Research Questions ... 8

1.5 Research Hypothesis ... 9

1.6 Significance of the Study ... 10

1.7 Outline of the Chapters in the Dissertation ... 12


2.1 Banking System in GCC ... 14

2.2 Islamic Banking System in GCC ... 18

2.3 Stock Market Analysis In GCC Region ... 19

2.4 GCC Economic Overview... 21


3.1 Theortical Framwork of the Study ... 24

3.1.1 Market-Based Theories ... 25 Signaling Theory ... 25 Efficient Market Theory ... 27 Random Walk Theory ... 29

3.1.2 Information Asymmetry Theory ... 30

3.1.3 Regulatory and Free Market Theories ... 32

3.1.4 Agency Theory ... 33

3.1.5 Information Costs ... 34

3.2 Theory And Framework of Disclosure ... 35

3.2.1 The Concept of Disclosure and its Importance ... 35

3.2.2 The Importance of Transparency and Disclosure in Islam ... 38

3.3 Disclousre in Banking System ... 40

3.3.1 Disclosure in Conventional Banking System ... 40

3.3.2 Disclosure in Islamic Banking System ... 43

3.3.3 Measurement of Banking Disclosure ... 45



3.3.4 Disclosure Index ... 46

3.4 Theory And Framwork of Stock Returns Volatility ... 48

3.4.1 Concept of Stocks Returns Volatility ... 49

3.4.2 Determinants of Banks Stock Returns ... 50

3.5 Bank Specific Varabiles ... 51

3.6 Macro Economic Variables ... 57

3.7 The Relationship Between Disclocure and Stock Returns Volatility ... 62

3.8 The Research Gap And Contribution of the Study ... 65


4.1 Model Specification ... 67

4.1.1 The Independent Variables ... 67 The Disclosure Index (DI) ... 67 Bank Specific Variables ... 74 Country Specific: (Macroeconomic) ... 75

4.1.2 The Dependent Variables (Stock Returns Volatility) ... 76

4.2 Data Selection ... 79

4.3 Empirical Models ... 85

4.3.1 Baseline Empirical Models ... 85

4.3.2 Empirical Models Addressing Bank’s Type ... 87

4.4 Estimation Method ... 91


5.1 Dependent Variable Representation ... 93

5.2 Focus Variable Representation: Disclosure Index ... 103

5.3 Descriptive Statistics ... 112

5.4 Correlation Matrix ... 114

5.5 Empirical Results ... 117

5.6 Estimation Results of Stock Returns Volatility ... 119

5.7 Statistical Specification Tests ... 122

5.7.1 Bank-Specific Factors ... 124

5.7.2 Macroeconomic Factors ... 132

5.8 The Effect of Disclosure on Stock Returns Volatility (Islamic Vs. Conventional) ... 133


6.1 Main Issue ... 145

6.2 Investigations ... 148

6.3 The Findings ... 149

6.4 Policy Implications ... 152

6.5 Limitations And Future Research ... 154








Table 2.1 GCC: Size of financial system as in Sep 2015 (percent of GDP 15

Table 2.2 Total Banking Sector Assets in GCC region 17

Table 2.3 The GCC Stock Markets 20

Table 2.4 Summary of selected Economic Indicators for GCC region 22 Table 3.1 Summary of previous studies on the stock returns volatility

literature 61

Table 4.1 Disclosure Index (DI) 71

Table 4.2 Description of the variables, data source and expected sign 77 Table 4.3 Banking sector structure in sample countries 81 Table 4.4 Conventional and Islamic banks included in the study 81 Table 5.1 Calculating the Disclosure Index for Qatar National Bank 105

Table 5.2 Disclosure levels in GCC banks (2005-2015) 106

Table 5.3 Disclosure levels of conventional and Islamic banks in GCC

(2005-2015) 107

Table 5.4 Descriptive statistics of dependent and explanatory variables 113 Table 5.5 Correlation matrix for dependent and explanatory variables 115

Table 5.6 VIF Multicollinearity Test 116

Table 5.7 Control Variables Description 120

Table 5.8 The result of model 1 and 2. (Estimation result of stock returnss

volatility (fixed-effects robust estimator) 121

Table 5.9 Summary of stock returns volatility determinants 133 Table 5.10 The result of model 3 (Estimation result of stock returns

volatility including Islamic dummy variable). 135 Table 5.11 The result of model 4 (Alternative regression specifications for

stock returns volatility including the Islamic interactive dummy

for all control variables). 137



Table 5.12 Summary of stock returns volatility determinants with Islamic

interactive dummy for all variables 144

Table 6.1 Main Findings 150




Figure 2.1 Assets growth of GCC banks: Islamic banks versus

conventional banks 2008-2014 19

Figure 3.1 The Main components of transparent information 37

Figure 4.1 The Construction of DI 73

Figure 4.2 Holistic overview of the variables hypothesis relationship 78

Figure 4.3 Data distribution according to years. 83

Figure 5.1 Stock returns volatility in GCC Banks 94

Figure 5.2 Stock returns volatility in conventional and Islamic banks in

GCC countries 95

Figure 5.3 Stock returns volatility in conventional and Islamic banks in

UAE 97

Figure 5.4 Stock returns volatility in conventional and Islamic banks in

Qatar 98

Figure 5.5 Stock returns volatility in conventional and Islamic banks in

KSA 100

Figure 5.6 Stock returns volatility in conventional and Islamic banks in

Bahrain 101

Figure 5.7 Stock returns volatility in conventional and Islamic banks in

Kuwait 102

Figure 5.8 Disclosure levels in GCC banks (2005-2015). 106 Figure 5.9 Disclosure levels in Conventional and Islamic banks in GCC

Countries (2005-2015). 107

Figure 5.10 Disclosure levels in Conventional and Islamic banks in UAE. 108 Figure 5.11 Disclosure levels in Conventional and Islamic banks in Qatar. 109 Figure 5.12 Disclosure levels in Conventional and Islamic banks in KSA 110 Figure 5.13 Disclosure levels in Conventional and Islamic banks in Bahrai 111 Figure 5.14 Disclosure levels in Conventional and Islamic banks in Kuwait 111




AAOIFI Accounting and Auditing Organization for Islamic Financial Institutions

BCBS Basel Committee on Banking Supervision

CIFAR Centre for International Financial Analysis Research CTI Cost-to-income ratio

DI Discourse Index

DJIA Dow Jones Industrial Average EMH Efficient Market Hypothesis

FE Fixed Effects

GCC Gulf Cooperation Council

GDP Gross domestic product

GOB Government of Bahrain

IAHs Investment Account Holders IFSB Islamic Financial Services Board IMF International Monetary Fund

KSA Kingdom of Saudi Arabia

OLS Ordinary Least Squares

RE Random Effects

ROA Return on assets

SD Standard Deviation

SEC Securities and Exchange Commission

UAE United Arab Emirates





Many economists like Ben Bernanke (Former Chairman, Federal Reserve, United States) and Eigner & Umlauft (2014) consider the 2008 financial crisis as the worst financial crisis since the great depression of the 1930s. The crisis impelled a global awareness to enhance disclosure in the financial reporting related to risks. It has been widely accepted that the proper disclosure helps to enhance the stability of banking financial system in general and the stock returns in particular. A lack of disclosure about banks' risk exposures prevented markets from correctly pricing risk that leads to the financial crisis in 2007-2008 (Hyytinen & Takalo, 2003; Nier, 2004).

The concept of improving the disclosure in the banking sector is relatively new;

it has emerged after the recent global financial crises of Asian financial crisis and the US sub-prime crisis in 2008, where many banks were asked to increase their disclosure in the financial statements (Lahrech et al., 2014). Furthermore, it became more prevalent, when the official bodies including the Basel Committee on Banking Supervision (2003) and the International Monetary Fund (IMF) recommended increasing the transparency and disclosure in banking firms. These appeals came simultaneously with the suspicion that recent crises owe to a lack of disclosure about both borrowers and lenders. However, a publicly available practice and policies could have restricted the intensity of the last few crises (Fischer, 1999). As a policy response, the stated aim of the Pillar 3 disclosures introduced by the revised Basel Accord III is to provide incentives for banks to manage their risks more prudently.



The issue of disclosure is crucial in the banking sector in general, and even more relevant in the Islamic banking (Lahrech et al., 2014). Because like other conventional banks or financial institutions, Islamic banks also deal with money in different forms of business, such as collecting deposits, lending and investing. However, the fact which distinguishes Islamic banks is the way they deal with the depositors by non- predetermined sharing of profit and loss. This factor implies the Islamic banking’s' fiduciary role in maintaining trust among depositors and investment account holders to achieve investment goals (to record profit) and a fair distribution of the revenues between banks and the investment account holders (according to the Mudaraba agreement). Such a functioning becomes per-eminent in the continuity of the Islamic banking business.

Based on the discussion made above, Islamic banking holds more responsibility than conventional banks to give higher disclosure to their investment account holders, not only about their financial conditions but concerning to the management of the trust money also. Additionally, they must explore the most appropriate measures to develop accounting standards that could deliver adequate, reliable and relevant information to financial statement users.

In such a context, Islamic banks will emerge as a favourable alternative to conventional banks because their functioning is naturally less volatile, and features only moderate risk. For example, it was argued by Saiti et al., (2014) that Islamic stocks would be less exposed to the leverage effect due to an upper limit of debt financing imposed by Shari’ah screening. Therefore, Islamic banking results in the lower volatility and higher diversification level among the mix of all Islamic equities, especially during the market downturn.



Indeed, Islamic banks prohibit speculation, uncertainty and any form of the interest rate on credit (riba) that is assimilated with illicit usury practice. Therefore, Islamic banking investments are a priori more likely to reduce financial risk and excess volatility and provide a more stable financial industry. They also advocate sharing profits and losses with investors. For example, in Islamic banks, during the Mudarabah contract, the bank will act as Mudarib while the investor will be rab-Almaal, who will provide the capital and they will share the profits or losses based on their agreement. In such cases, Islamic banks are expected to invest in the sectors that comply with the Shari’ah requirements with fewer volatility features in nature, and to disclose all the

relevant information to the stakeholders.

To this end, it is worth investigating to analyse the reporting of Islamic banks about their transactions and activities. Because, under the Shari’ah, Islamic banks are responsible for investing the investors and depositor’s money in viable projects. These projects could be the debt-based financing like Murabaha, Salam, Ijarah and (or) profit and loss sharing like Mudarabah and Musharaka. In these projects, the investors and the bank will enter into an agreement that requires both parties to have full access to their transactions information as covered by the agreement, thereby assisting to stable their stock returns.

The need for disclosure is essential Shari`ah elements also. Any form of hiding the information, cheating or attempt to distort the reality will violate the principles of justice and fairness in Shari`ah. As mentioned in the Qur’an in the following verse:

“O you who believe! When you contract a debtor for a fixed period, write it down. Let a scribe write it down injustice between you. Let not the scribe refuse to write as Allah has taught him, so let him write …” (Al- Baqarah 282).



This verse emphasizes the value of transparency in Islam declaring that every transaction must be written to avoid injustice and ambiguity (gharar).

The paragraph as mentioned above emphasizes the importance of transparency in Islam. However, the question arises, to what extent we should disclose information?

Alternatively, do we have to disclose complete information to the market? At the same time, someone may think of some reasons what could be the negative effects of increasing the disclosure, for example, increasing the disclosure to a certain level might increase the market volatility to the stock returns or to the market in general, and at the same time it will increase the cost of the bank. As such, increasing the disclosure requirements will provide the markets with lots of data with a possibility of getting misconstrued. Also, by enhancing the disclosure beyond a certain level may lead to the inefficient liquidation of the bank. It is because of the characteristics of a standard deposit contract; its payoff scheme possesses limited upside gains (cap) but omits the depositor with the downside risk. Accordingly, investors will not consider possible future upside gains of the bank when choosing whether or not to withdraw their deposits (Allenspach, 2009).

Therefore, common knowledge would perceive that increasing disclosure typically enhances the stability of the financial system. However, it is still debatable to predict a positive impact of the increased disclosure in the banking sector on stock returns volatility.

Alternatively, it has been argued by Sowerbutts et al., (2013) that inappropriate public disclosure by banks may lead to the financial crisis. Because investors are incapable of judging the risks that banks are taking and withdraw lending in times of systemic stress. Therefore, an increased disclosure will improve financial stability and reduce market volatility. Though, another conceptual work suggests that an increased



disclosure may not improve the welfare and therefore may increase stock returns volatility for the banking industry.

Owing to the interests towards Islamic banking, we found this issue of

“Increasing financial disclosure by Islamic banks” as facilitating many more questions about its potential impact on the GCC banking system. For example, Are Islamic banks prepared for increasing their financial disclosure? Do they have higher levels of financial disclosure compared to the conventional ones? Is the stock returns volatility of Islamic banks affected by increasing financial disclosure? Does financial disclosure necessarily lead to a positive impact on the stability of stock returns in the banking system in GCC?

This research addresses these relevant policymaking questions through investigating the evolution of increasing financial disclosure under GCC banking system and its effect on stock returns volatility. Understanding the conditions under which more financial disclosure may improve or worsen outcomes will enhance our understanding and assist us in building a better policy.


A discussion paper issued by the Euro-currency Standing Committee of G10 Central Banks in September 1994 (The ‘Fisher Report’) was one of the clearest statements to date on the importance of and the rationale for improved levels of financial disclosure by institutions.

Starting from that time, there were many research papers, conferences, and articles discussed the importance of transparency and disclosure in financial system in general and in banking industry in particular.



For example, (Patel, Balic, & Bwakira, 2002) find that micro-level transparency is integral to effective corporate governance, and the higher transparency and better disclosure will reduce the information asymmetry between a firm’s management and financial stakeholders, equity and bond holders, which will lead to mitigate the agency problem in corporate governance. At the same time, Herdman (2001) argues that it is critical for all public companies to provide an understandable, comprehensive and reliable portrayal of their financial condition and performance in order to maximize investor confidence.

Based on the previous discussions, we found that, it is very important for both conventional and Islamic banks to have an adequate level of financial disclosure of the information to the stakeholders; and these disclosures must reveal enough and reliable information to enable the assessment of its financial achievements, profitability and risk exposure.

Although disclosure is an important aspect in the financial and banking sector, but at the same time disclosing intensive information which contain the details of the financial institutions is not something preferred in banking industry, since increasing the disclosure may affect the banks in negative way.

For example, it has been argued by Rajni and Maliendra, (2007) that stock prices volatility tends to rise when new information is released into the market, however the extent to which it rises is determined by the relevance of that new information as well as the degree in which the news surprise investors.

To date, the existing literature has exhaustively discussed the various aspects of disclosure and its main effects on banking system and stock return in conventional banks. Conversely, empirical studies have rarely been directed towards disclosure in Islamic banking system and their multifaceted impact in GCC area. In more particular,



it is yet not clear that what could be the multifaceted effects of increasing the financial disclosure in conventional and Islamic banking system in GCC, and whether increasing the financial disclosure level to a certain level will affect the volatility of stock returns in GCC banking system or not. To the best of our knowledge, no empirical study has been found to investigate and compare the disclosure level of conventional and Islamic banks in GCC area and study the effects and relationship between the financial disclosure and its impacts on stock returns and whether it has positive or negative effects towards it’s volatility during the last eleven years at banking system of Bahrain, Kuwait, Qatar, Saudi Arabia and United Arab Emirates.

In other words, a stock returns volatility is a major issue in both theory and practice and has attracted the attention of researchers. An increase in stock returns volatility leads to a perception of higher risk of a firm; therefore the cost of capital of companies rises (Bushee & Noe, 2000). These authors also affirm that volatility adversely affects the firm value by making stock returns compensation less efficient (costlier). The increase of stock returns volatility in recent years and the expected impact of information asymmetries on stock returns have raised questions about whether financial reporting can decrease stock returns volatility or not (Rajgopal &

Venkatachalam, 2011).

Therefore, based on the previous explanation, this study estimates and compare the financial disclosure level in conventional and Islamic banking institutions in five GCC countries, and examine the relationship between this financial disclosure level and stock returns volatility in the GCC selected countries during the last eleven years.



In the banking industry, financial statements disclosure reduces the volatility of stock returns by decreasing the information asymmetry. With insufficient or unclear information, investor act erratically in the confusion that creates volatility in stock returns (Jayasree, 2013). The investigation, therefore, attempts to identify any existing correlation between financial disclosure and stock returns volatility. Although there are other factors also, which may lead to the stock returns volatility, this study concentrates on the financial disclosures aspect.

Based on the problem statement, this study has three objectives:

1. To measure the financial disclosure level of conventional and Islamic banking institutions in five GCC banking system.

2. To investigate that whether the Disclosure Index affects the stock returns volatility of both conventional and Islamic Banks in GCC countries.

3. To examine the relationship between the Disclosure Index, bank-specific variables, macroeconomic variables and stock returns volatility in the conventional and Islamic banks of the selected GCC countries.


Diverse issues arise concerning the research objectives above. This study endeavors to answer the following questions specifically:

RQ1. Is there a difference between the financial disclosure levels of Islamic vs. conventional banks in GCC banking system? Which one is more transparent to the market?



RQ2. Does the disclosure level negatively affect banks stock returns volatility in GCC countries? And does this relationship differ between Islamic and conventional banks?

RQ3. What will be the relationships among the Disclosure Index, bank- specific variables, macroeconomic variables and stock returns volatility in conventional and Islamic banks in GCC countries?


To answer the research questions, the following hypotheses are formulated:

The first hypothesis addresses the first research question of the study: Is there a difference between the disclosure levels of Islamic vs. conventional banks in GCC banking system? Which banks are more transparent to the market?

H0: There are no differences between the disclosure level of Islamic and conventional banks in GCC region.

H1: There are differences between the disclosure level of Islamic and conventional banks in GCC region.

The following hypothesis addresses the sub-questions, in the case that there are differences between the disclosure levels;

H0: The disclosure level in Islamic banking is higher than conventional banks.

H1: The disclosure level in Islamic banking is lower than conventional banks.

The second hypothesis addresses the second research question of the study, does the disclosure level negatively affects banks stock returns volatility in GCC countries?

Moreover, does this relationship differ between Islamic and conventional banks?

H0: Enhancing the disclosure will not affect the stock returns volatility.

H1: Enhancing the disclosure will affect the stock returns volatility.



The following hypothesis addresses the sub-questions, in the case that enhancing the disclosure will affect the stock returns volatility;

H0: Enhancing the disclosure will decrease the stock returns volatility.

H1: Enhancing the disclosure will increase the stock returns volatility.

Finally, the third hypothesis considers the third research question of the study, what will be the relationships among the Disclosure Index, bank-specific variables, macroeconomic variables and stock returns volatility in Conventional and Islamic banks in GCC countries?

H0: There will be no association between the independent variables and stock returns volatility.

H1: There is a relationship between the independent variables and stock returns volatility.

The following hypothesis addresses the sub-questions, in the case that, there is relationship between the independent variables and stock returns volatility;

H0: Disclosure index, bank-specific variables, macroeconomic variables have a positive effect on the stock returns volatility.

H1: Disclosure index, bank-specific variables, macroeconomic variables have a negative effect on the stock returns volatility.


Accounting disclosure is raised to a particularly high level of importance for banking organizations relative to non-financial firms, because banks are inherently more opaque (Huang, 2006). This importance encourage and urges the banks to do more research studies on their disclosure levels and its multifaceted impact, and in particular they were trying to analyse and understand the effects of increasing their disclosure levels to the



This research studies the relationship between Hong Kong stock market which proxy by Hang Seng Index (HSI) and four determinants including gold price, crude

In this research, the researchers will examine the relationship between the fluctuation of housing price in the United States and the macroeconomic variables, which are

By applying the theory of international portfolio diversification which was derived from the Modern Portfolio Theory (Hakeem et al., 2016), investors in Singapore can

Financial development and economic growth nexus: A study of the role of stock markets and banking industry in selected African countries. unpublished thesis from

There is a lack of study on RSS found in Malaysia market, hence, this study focuses on regulated short selling in Malaysian market and concentrates on stock price fluctuation on

“Regulated Short Selling (RSS)” in Malaysia and concentrates on stock price fluctuation on announcements of either a stock is being added into or withdrawn from the RSS list by

As shown in Table 4, the cumulative abnormal return for the 40-day estimation window was regressed against the independent variables, namely dividends per share,

In the first part of this study, as expected, upgrade stock recommendations are found to positively influence client cumulative abnormal returns ( CCAR ); downgrade stock

The objectives of the study are (i) to identify the influence of local sentiment in the GCC stock market, (ii) to determine the effect of firm characteristics

4.4.3(c)i The Relationship between Gold Returns and Stock Return Conditional on the Extreme Stock Market Shocks

As can be observed from the overall results presented in Table 2 and Table 3, leverage exhibits a significant relationship with stock returns in most of the sectors when it is

Rouwenhorst (1999) found that the J6K6 momentum strategy produced 0.39% monthly average momentum returns in Asian stock markets where 85% and 15% of the sample countries exhibited

This study examines the effect of natural catastrophes on the stock returns of the firms listed in Indonesia, Malaysia, and Thailand stock exchange and operating in

The average stock returns volatility are significantly different between 10 economic sectors where P-values for the standard ANOVA and the Welch adjusted ANOVA are

5.7 The Investor Sentiment Composite Index and Volatility of Malaysian Stock Returns Controlled by Macroeconomic Fundamentals and the Sub-Period of the Global

Stock market returns are the outcome of the Model 1 analysis, which will identify if there is any significant change in the stock market performance after

Lim and Shaista (2008) have studied the presence of linkages or co-movements between Malaysia stock market and stock markets of its three major trading partners, which

This paper will be focused on the impact of the Brexit on the stock return of the selected European Union (EU) countries which are Austria, Bulgaria, Finland, France, Ireland,

The null hypothesis of inflation does not Granger cause stock returns and stock return does not Granger cause inflation for all sub periods are not rejected except the

For Australia, which is contradicting with the results obtained in other countries, the positive effect of US EPU shocks on Australian stock market returns could

Overall, given the several macroeconomic factors in determining banks’ stock returns of the 5 banks exited in Malaysia, which are Public Bank, Maybank, RHB Bank,

Company specific determinants or factors that influence the adoption of RBA approach by internal auditors were identified by Castanheira, Rodrigues & Craig (2009) in