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Information asymmetry and regulatory shortcomings in profit sharing investment accounts

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Purpose – The purpose of this paper is to explore the shortcomings in the compliance of the
full-fledged Islamic banks with the Bank Negara Malaysia (BNM) disclosure guidelines related to the
profit sharing investment accounts (PSIAs).
Design/methodology/approach – This study uses interviews and a survey.
Findings – It was found that only two out five full-fledged Islamic banks followed BNM guidelines
which are based on the idea of self-regulation. The authors developed a checklist of disclosure items,
and probed whether the sample banks would adopt these new disclosure items. As it transpired, some
banks have been disclosing these items selectively, and/or recording them for internal control and
management purposes. The findings show these banks do not disclose: policies, procedures, product
design and structure; profit allocation basis, methodology of calculating profit attributable to
investment account holders (IAHs). Nevertheless, disclosure related to Shari’ah compliance was given
to a reasonable extent. It is intriguing that full-fledged Islamic banks do not provide comprehensive
disclosure related to PSIAs because such disclosure is not mandatory; while foreign full-fledged
Islamic banks provided such disclosure voluntarily.
Research limitations/implications – The banking sector regulator is not sure of whether individual
Islamic banks have actually complied with all of its guidelines.The shortcomings in the disclosure are due
to lack of expertise, outdated information system structure, and shortage of support and highly trained
staff. The authors propose that the Islamic jurists should use Istiqra – which is a comprehensive
examination of contracting environment before a newdefinite ruling ismade on the issue of accountability
to the IAHs. This would involve exploratory study of howthe securities regulator (not banking regulator)
perceives the information risks faced by the IAHs and enforce new disclosure guidelines.
Originality/value – This paper proposes new disclosure guidelines which incorporate transparency,
appropriateness, and timeliness to reduce information asymmetry and enhance governance disclosure.

Keywords Information asymmetry, Profit sharing investment accounts, Mudarabah, Islamic banks,Malaysia, Company profit sharing schemes, Islam, Banking

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Informasi Detail

Judul Seri

International Journal of Islamic and Middle Eastern Finance and Management

No. Panggil

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Penerbit

: Emerald Group., 2012

Deskripsi Fisik

International Journal of Islamic and Middle Eastern Finance and Management Vol. 5 No. 4, 2012 pp. 371-387

Bahasa

English

ISBN/ISSN

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Klasifikasi

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Tipe Isi

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Tipe Media

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Tipe Pembawa

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Edisi

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Subjek

AKUNTANSI

Info Detail Spesifik

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Pernyataan Tanggungjawab

Asmawati/Syahrial

Versi lain/terkait

Lampiran Berkas

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