Related party disclosures in financial reporting for Islamic banks

Abstract

Purpose The purpose of this study is to determine the impacts of related party transactions on the performance of Islamic banks in Pakistan. In addition, this study aims to determine whether corporate governance mechanisms enhance company performance and mitigate agency problems associated with related party transactions in the Islamic banks. Design/methodology/approach Sample includes all Islamic banks domiciled in Pakistan from 2017 to 2021. To run the regression models, the regression assumptions about normality, heteroskedasticity, autocorrelation and multicollinearity are determined. Findings This study finds that institutional ownership has a significant impact on mitigating agency problems associated with tunneling. Related party borrowings indicate expropriation and conflict of interest, whereas related party revenues indicate propping and efficient transactions. Research limitations/implications This study uses data from all Islamic banks and specialized Islamic branches working in Pakistan. In the future, data of other institutions offering Islamic finance in Pakistan and in other emerging economies can be used to determine the role of related party transactions. Practical implications A thorough understanding of related party interrelationships in the Islamic banking system is essential, as these transactions can result in either the creation of wealth or the destruction of wealth. It is also necessary to determine the type of transactions that ultimately benefit Islamic investors. Originality/value The impacts of different related party transactions (in terms of cash inflows and outflows) of Islamic banks are investigated. Prior studies generally look at the impact of related party transactions on firm performance in totality.

Literation of Muamalah Maaliyaah Academic in Online Transactions

“…In the following, a discussion of the hypotheses that have been tested previously will be presented. From the simple regression test, the results showed that the influence of Understanding Accounting on the Decision to Conduct Online Transactions for the Department of Commerce at the Lhokseumawe State Polytechnic for students of Islamic Institution Accounting was 1.348 (Rafay, 2016). This means that if the Understanding of Muamalah Maaliyaah Contracts increases by one unit, then the Decision to Conduct Muamalah Transactions Online increases by 1.348 assuming the other independent variables are of a fixed value (Syaichoni & Setiawan, 2022).…”

Fraudulent financial reporting and related party transactions

“…Bhuiyan and Roudaki (2018) in News land found that half of the failed firms were involved in RPTs and later convicted of financial statement fraud. In Pakistan, Rafay (2022) found that related party borrowings indicate expropriation and conflict of interest, whereas related party revenues indicate propping and efficient transactions. Further, Amidu et al, (2019) in Ghana found that firms engaged in some of transfer pricing strategies and financial statement fraud did so to avoid tax.…”