Earnings management and internal governance mechanisms: The role of religiosity

Motivated by the managers’ social norms and religious orientations, this study offers new avenues for investigating effect of internal governance in curbing earnings management. We comparatively assess whether mechanisms (i.e., boards directors audit committees) employed Islamic conventional banks could differentially mitigate take a step further to association under extended mechanism (i.e. Shari’ah supervisory board) banks. For global sample 14 countries operating on dual banking system between years 2007−2015, we find that, average, having effective committees enhance quality financial reporting industry. Conditional bank type, that large independent board (and are negatively associated with management There no structural differences across two types effectiveness these traditional mechanisms. also non-traditional governance) can significantly reduce This finding is more evident when large; its members have expertise serve multiple banks’ boards. Our results provide important implications regulators governing systems highlighting explicit role religiosity managerial opportunism impact double promoting high banking.