CORPORATE GOVERNANCE AND DISCRETIONARY ACCRUALS: EVIDENCE FROM INDONESIAN ISLAMIC BANKS

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Abstract

The objective of this study is to investigate the effect of the corporate governance on the discretionary accruals. The study of the corporate governance structure in the banking sectors is an important component within the enhancement of banks’ efficiency and performance. While prior studies employed corporate governance dimensions as variable proxies, this study uses a single proxy: corporate governance efficiency. The measurement of the corporate governance efficiency employed the Data Envelopment Analysis with the help of the EMS software. Using purposive sampling, the data were extracted from the financial statements and annual reports of the Islamic banks. The regression using panel data was employed to analyze the relationship between the efficiency and bank’ discretionary accruals. The main findings show that the corporate governance efficiency significantly correlated to the Islamic bank’ discretionary accruals, implying that good corporate governance can minimize earning management and therefore improve earning quality. The efficiency level of the corporate governance also improved significantly during the research period. Additional results indicated that the control variables of risk and gender board of director were not significant, but the percentage gender board and board size significantly influenced the discretionary accruals. The results of this study draw some implications that help academicians, banks and investors of the banking sector.

Keywords: Corporate Governance, Efficiency, Discretionary Accruals, Islamic Banks

Date received: 7 February 2017

Date Accepted: 5 April 2017

How to cite this paper: Kusuma, H., & Zain, H. D. (2017). Corporate governance and discretionary accruals: Evidence from Indonesian Islamic banks. Corporate Ownership & Control, 14(3-1), 259-265. https://doi.org/10.22495/cocv14i3c1art11