Impact of Audit Committee Quality on the Financial Performance of Conventional and Islamic Banks

Abstract

A lot of previous research studied the relationship between audit committee quality and the financial performance of conventional banks before and during the subprime crisis, whereas some other investigations analyzed the same association in the framework of Islamic banks. However, no study has compared these two correlations either before, during, or after the subprime crisis. Several reasons explain the differences, such as the audit committee quality of each bank type, the evaluation method of the financial performance, the research peculiarities, the methodology, the data, and the interpretation. This research aims to compare the impacts of the audit committees’ quality on the financial performance of Islamic and conventional banks between 2010 and 2019. The financial performance measures and audit committees’ determinants of the conventional and Islamic banks concerned 112 banks of each type. The collected data covered four continents: America, Asia, Africa, and Europe. Impacts were compared by using the Generalized Least Squares analysis. The results showed that the audit committee reduced the profitability of two bank types. Moreover, it harmed the conventional banks’ efficiency but reported an unclear effect within Islamic banks. Even so, we noticed that the audit committee had a positive impact on the conventional banks’ liquidity, while the same effect was apparently ambiguous for the Islamic banks’ liquidity. For solvency, the audit committee positively influenced conventional banks while it affected that of Islamic banks.

Disclosure, Shariah governance and financial performance in Islamic banks

“…Thus, this finding is coherent with Aslam and Haron (2020b). Also, it is like for the conventional banks where Haddad et al (2021) concluded that the correlation between the conventional banks' ROA and AC is statistically significant. But the AC has a significantly negative impact on ROE.…”

Audit Committee Characteristics and Quality of Financial Information: The Role of the Internal Information Environment and Political Connections

“…It can be mentioned that the internal information environment does not improve the financial reporting quality. The results in the study are consistent with those reported by Abbaszadeh et al (2013), Alzeban and Sawan (2015), and Haddad et al (2021).…”

“…Recently, as the audit committee evolves, academic research seeks to understand the usefulness of the characteristics of the audit committee, emphasising whether these characteristics affect audit quality and quality of financial reporting (Haddad et al 2021;Harris and Williams 2020;Zulfikar et al 2020). Many of these investigations have increased due to the emergence of regulatory provisions (Thansi 2004).…”

“…According to Haddad et al (2021), every audit committee member is called independent, who has no personal or financial connection with the firm or executive managers. He also believes that the risk of fraud is reduced when the audit committee is independent.…”

Karakteristik komite audit dan kinerja bank: Komparasi syariah dan konvensional

“…Pembentukan AC akan membuat penerapan GCG menjadi efektif dan efisien (Haddad et al, 2021;Setyawati & Bernawati, 2020) karena memberikan perlindungan atas kepentingan pemegang saham (McLaughlin et al, 2021) melalui fungsi pengawasan dalam memastikan setiap pelaporan keuangan yang dibuat telah sesuai dengan standar (Sari et al, 2020) sehingga kinerja perusahaan juga akan mengalami peningkatan. Pendapat lain mengatakan bahwa, untuk meningkatkan kinerja pada sebuah bank dan perusahaan sangatlah penting untuk memperhatikan atribut-atribut maupun karakteristik yang terdapat dalam AC (Manossoh, 2016).…”