Fair value and financial instability: comparative study between Islamic and conventional banks. (2014)

• Record Type: Journal Article
• Authors: Gharbi, Leila; Halioui, Khamoussi
• Is Part Of: International journal of behavioural accounting and finance. Volume 4:Number 3(2014)
• Page Start: 221
• Page End: 244
• Publication Date: 2014
• Subjects: fair value accounting -- unrealised gain and loss -- capital adequacy ratio -- risk-weighted asset; Accounting -- Psychological aspects -- Periodicals; Business enterprises -- Finance -- Psychological aspects -- Periodicals; Investments -- Psychological aspects -- Periodicals; Organizational behavior -- Periodicals; 657.019
• Languages: English
• ISSNs: 1753-1969

Abstract

In Gulf Cooperation Council countries, Islamic banks operate side-by-side with conventional banks. Both their operations are based on their own principles and frameworks although some regulations might overlap with each other. This study aims to explore the impact of fair value accounting on financial instability for both types of banks during the period 2003–2011. The paper discusses whether fair value affects capital adequacy ratio and risk-taking behaviour of Islamic and conventional banks in the same way. The findings prove that regulatory capital of Islamic banks is less affected by fair value changes than conventional ones. However, they behave similarly with regard to the risk associated with fair value measurement. Only three-stage least squares (3SLS) estimation showed positive and significant impact of fair value changes on risk-taking behaviour for the full sample and Islamic banks, but not for conventional banks.