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AJAR
7,3 The effect of audit committee
quality on the conventional and
Islamic banks’ financial
230 performance between subprime
Received 23 November 2020
Revised 30 January 2021
and Corona crises
10 March 2021
27 April 2021 Achraf Haddad
Accepted 9 May 2021
Faculty of Economic Sciences and Management of Sousse, University of Sousse,
Sousse, Tunisia and
Faculty of Economic Sciences and Management of Sfax, University of Sfax,
Sfax, Tunisia
Anis El Ammari
Faculty of Economic Sciences and Management of Mahdia, University of Monastir,
Monastir, Tunisia, and
Abdelfattah Bouri
Faculty of Economic Sciences and Management of Sfax, University of Sfax,
Sfax, Tunisia

Abstract
Purpose – This study aims to test empirically the differences between Islamic and conventional banks in terms
of impacts of the audit committees’ quality on financial performance between Subprime and Corona crises.
Design/methodology/approach – The variables are articulated in four hypotheses tested by the GLS
analysis. The data were collected via DATASTREAM and from banks’ annual reports. The collected data
covered four continents: America, Asia, Africa and Europe. The financial performance measures and audit
committee’s determinants of the conventional and Islamic banks concerned 112 banks of each type after the
Subprime crisis and before the Corona crisis (2010–2019).
Findings – Results showed that the audit committee reduced the profitability of two bank types. Moreover, it
harmed the conventional banks’ efficiency, but reported an unclear effect within Islamic banks. Even so, the
authors noticed that the audit committee had a positive impact for the conventional banks’ liquidity, while the
same effect was apparently ambiguous on the Islamic banks’ liquidity. For solvency, the audit committee
positively influenced conventional banks, while it affected that of Islamic banks.
Research limitations/implications – Empirically, the authors’ results can serve as a reference for decision-
makers allowing to clarify the data on the financial competitiveness of two bank types to facilitate the planning
of strategic performance programs based on the audit committee quality. Theoretically, researchers found that
the differences between the results are due to the audit committee quality of each bank type or to the financial
performance evaluation method. However, there are further factors that are related to the research peculiarities,
the methodology, the data and the interpretation.

JEL Classification — F39, G1, G20, G21, G30, G33.

© Achraf Haddad, Anis El Ammari and Abdelfattah Bouri. Published in Asian Journal of Accounting
Research. Published by Emerald Publishing Limited. This article is published under the Creative
Commons Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute, translate and create
derivative works of this article (for both commercial and non-commercial purposes), subject to full
Asian Journal of Accounting attribution to the original publication and authors. The full terms of this licence may be seen at http://
Research creativecommons.org/licences/by/4.0/legalcode
Vol. 7 No. 3, 2022
pp. 230-251 The authors would like to express their gratitude to the editor and the reviewers who have
Emerald Publishing Limited significantly contributed to the improvement of the research quality thanks to their recommendations
2443-4175
DOI 10.1108/AJAR-11-2020-0121 and helpful comments.
Originality/value – Based on the comparative literature review between conventional and Islamic banks, this The effect of
study is the first conditional and comparative research between the audit committee quality and the financial
performance of conventional and Islamic banks in a specific period (after Subprime and before Corona crises). audit
Keywords Conventional banks (CBs), Islamic banks (IBs), Audit committee quality (ACQ), Financial committee
performance (FP), Comparative study, Financial stability period quality
Paper type Research paper

1. Introduction 231
As a mechanism of governance, the audit committee (AC) was defined by the US Financial
Security Act (Sarbanes-Oxley) as being “an independent advisory body established by and
within the board of directors, primarily responsible for overseeing the accounting process,
control the financial information and auditing the financial statements. Thus, it is engaged in
the services of the board, the remuneration and the control of the auditors’ works.” Referring
to the law (Sarbanes-Oxley Act, 2002), the AC is a body responsible for appointing,
remunerating, retaining and supervising the work of internal and external auditors. It is
responsible for strengthening the independence of audit functions through the review of
financial statements and the assessment of risks and vulnerabilities.
In the literature, the ACs’ effectiveness has been the subject of various studies. Some
highlighted the impact of audit committee quality (ACQ) on the governance quality (Moses et al.,
2016; Zalata et al., 2018), while in others, the empirical results agree on the effect of ACs on FP
(Bilal et al., 2018; Aminul et al., 2018). Given its role in monitoring and controlling management
activities, the AC applies the necessary corrective actions in the case of fraud. However, Gul
(1989) indicated that the existence of an AC does not improve the auditor’s perception of
independence. Besides that, Vienot (1995) and Bouton (2002) criticized the presence of an AC
within companies and confirmed that the AC had no effective activities within the company.
Several studies have tested the relationship between the presence of an AC, the financial
reporting quality and the financial statements transparency (Dinu and Nedelcu, 2015; Bouaine
and Hrichi, 2019). In other words, AC research produced senior management, financial
information quality, and it showed a positive impact on the governance quality before, during
and after the Subprime crisis (Alzoubi and Selamat, 2012). Indeed, corporate oversight by a high-
quality committee can reduce the financial statements’ falsification and earnings’ management
(Beasley, 1996). Other studies discussed the role of the AC in reducing agency costs between the
CEO [1] and the chairman to solve conflicts of interest as a priority to achieve the objective of
improving the governance quality (Collier and Gregory, 1999). The primary function of the AC is
to monitor information related to FP (Xie et al., 2003). In the same vein, Chen et al. (2015) revealed
that companies that had established ACs without considering shareholders’ primacy have more
advantages to improve their benefits’ quality. However, in favor of agency theory, if the number
of auditors was large, the company would realize a poor FP.
The AC within banks plays a dual role. On the one hand, members are responsible for
monitoring the creation of monetary value, protecting the wealth of banks, ensuring the
effectiveness of governance practices, and managing banks’ potential conflicts of interest. On
the other hand, it also serves as a governance mechanism that aligns the interests of
executives with those of shareholders. The interest of the AC effectiveness in a financial
environment is not stable and suffers from a governance crisis. Therefore, the need to set up
this body within banks has increased dramatically, especially after the Subprime crisis. The
existence of an AC is mandatory for listed companies and banks (Darmadi, 2013b).
The choice of this period is justified, given that this decade was characterized by a
stability of the world banking system, allowing us to provide more effective comparative
results that better reflect the real differences of the ACs’ impacts on one bank type compared
to the other. Thus, this period shows the added value of each AC on the FP compared to the
same impacts for the other bank types. The first target of our explanatory research is to study
AJAR the reached relationship between a set of FP measures and some ACQ determinants for both
7,3 conventional and Islamic banks. The second purpose is to select the best AC model based on
the comparison between the AC’s effects as a governance mechanism on the profitability,
efficiency, liquidity and solvency of each bank type.
Since there are no comparative studies conducted in this area specifically among banks on
the international scale, this study will broaden the scope by providing theoretical and
empirical evidence of the relationship between various AC characteristics and FP in a specific
232 period. Our second contribution is directing the choice of the preferred AC based on, among
various factors, all functions, activities, tasks and managers. The basis for sorting and
channeling data is based on historical information (accounting data, audit reports, bank
structure and other information). We synthesized the third contribution to the effective
constitution and management of the AC to maintain the FP of the conventional or Islamic
banks and facilitate their introductions into a new market, the expansion of their activities,
the launch of a new banking product, and FP improvement. In the fourth contribution, we
showed that the good AC’s structure guarantees not only the supervision of banks’ FPs, but
also mitigated the agency conflict concerning FP between stakeholders and all types of
incoming and outgoing governance flows related to all aspects of financial, accounting, audit
and control information, whatever the operational, technical, or behavioral differences
between the supervisors and managers may be.

2. Literature review and hypothesis development

Stakeholder theory considers ethics through the integration of human values into operational
management, functions, directions, regulations and control. This theory encompasses the
relationship between all stakeholders threatened by the opportunism of some of them. This
can affect the institutions’ performance that benefits from the return via the exploitation of
human and financial resources, namely shareholders, managers, creditors, employees,
customers, suppliers and the government (Himaj, 2014). The presence of an AC causes the
reliability of financial reports to improve FP. In the following, our choice of the AC’s
determinants focuses on the impact of the AC size, the expertise of its members, their degree
of independence, and the number of annual meetings held by the AC (Bryan et al., 2004) on the
FP of conventional and Islamic banks. This choice was justified by three reasons. First,
because these characteristics related directly to the ACs’ auditors. Second, because these
measures were the most readily available compared with the other criteria. Finally, the
impacts of these determinants on the FP were quantifiable and visible; therefore, we could
maximize the number of significant impacts.

2.1 Audit committee size

Several previous studies highlighted the effect of the AC size on FP (Krishnan, 2005; Dinu and
Nedelcu; 2015; Tarek and Mohamed, 2016). The first set of studies observed a positive
association between the AC size and the FP (Awinbugri and Prince, 2019; Sattar et al., 2020;
Ashari and Krismiaji, 2020). In this sense, Anderson et al. (2004) and Krishnan and Lee (2009)
showed that the presence of a large AC provided strong oversight, improved the governance
quality, and promoted the disclosure and the transparency degree. Along the same lines, Wan
et al. (2010) found that the larger the ACs’ sizes, the more information on the governance
quality would be available to the users of financial statements. Hence, this positively and
directly influenced profits. Other studies stated that the larger the ACs’ sizes, the less
adjusted the results would be (Cornett et al., 2009).
However, the second set of studies found a negative association between the governance
issues and the AC size (Krishnan, 2005). Based on the stakeholder theory, a large AC
generates more delegation of power among members. Nevertheless, this habit creates neglect
and delay of duty, which causes more opportunistic behavior within the AC. For example,
Anderson et al. (2004) revealed that the AC size and the number of AC meetings were The effect of
negatively correlated and associated with the performance gaps. Another study found that audit
the AC size systematically influenced the downward management of revenues (Cornett et al.,
2009). Likewise, Xie et al. (2003) reported that small ACs tend to be more participatory, since
committee
they are characterized by a higher oversight capacity than larger ACs. Furthermore, quality
Indrawan et al. (2018) and Baiden (2020) revealed that a company with a smaller AC size
tended to improved income smoothing practices due to lower supervision in the financial
reporting process. 233
Based on the previous studies dealing with the relationship between the variables
mentioned, our testable proposition is as follows:
H1. There is a negative correlation between the AC size and the FP of conventional and
Islamic banks.

2.2 Presence of an accountant, a financier or an auditor in the audit committee

The effectiveness of an AC is one of the main criteria for audit quality. It is highly dependent
on a socio-psychological process and the personal and professional qualification of the
members. In particular, the AC effectiveness also depends on stakeholder groups that have
influential interactions, exchangers of information, and interactions with AC members and
internal or external auditors. The behavioral and technical competence of directors directly
influences the audit quality, as the most competent directors and experienced directors who
invest more in professional development. According to the Sarbanes-Oxley Act (2002), all AC
members must have knowledge of financial reports, answers to audit questions and internal
control experience. At least one member among the AC should be a financial expert with
ongoing experience in accounting. The experience includes covering accounting estimates,
accruals, provisions, preparation of financial statements, and auditing financial information.
Yet, Bilal et al. (2018) gave the implication of the need to have at least two financial experts
within the AC and the obligation of its strengthening.
However, Tanyi and Smith (2015) concluded that the excessive engagement of AC
members had a negative and significant impact on the supervision quality and the financial
information quality. Companies that have experienced members on their ACs and
abnormally high-profit accumulation levels are more likely to exceed performance
benchmarks. Krishnan (2005) discovered the presence of four factors indirectly associated
with the AC that may have an impact on internal control: managers’ work experience, the
tendency of management to commit fraud, the permanence of auditors, and financial stress.
As a result, the AC characteristics are associated with internal control only after the control of
other governance bodies. Thus, the AC contribution to internal control extends beyond other
organizations.
In the same research line, Abbott et al. (2004) revealed the presence of a negative
relationship between AC expertise and errors detected in the financial statements. This role of
ACs has provided a new research line on the relationship between the AC and internal control.
Confirming the same idea with the Malaysian perspective, Saad et al. (2007) affirmed the
presence of a negative association between the AC members’ expertise and the detection of
discretionary accruals. AC expertise has a negative and significant impact on non-audit fees
(Chaudhry, 2013).
Indeed, Krishnan (2005) confirmed that ACs whose members have financial expertise, are
more likely to be exposed to the impacts of internal control problems. Empirically, he
concluded that after the change of auditors, there were companies that had disclosed all the
internal control problems while they had, intentionally, kept other problems.
Similarly, Carrera et al. (2017) found that the proportion of experts within ACs decreased
the FRQ. According to them, the AC members’ financial expertise could enhance their
AJAR intentions and vigilance to bring a more sophisticated financial control. In all sectors and
7,3 particularly banking institutions, the AC members’ competence, irrespective of whether they
are in accounting or finance, is a dependent ingredient for improving the ACQ and for
establishing a system of dynamic auditing. The moderating effect comes mainly from the
intelligence of its members.
Therefore, such formatting provides additional creation of the banks’ FP. Given its results,
we make the following assumption:
234
H2. There is a negative correlation between the number of experts within the AC and the
FP of conventional and Islamic banks.

2.3 Presence of independent directors in the audit committee

From the foregoing, the exploitation of the degree of independence was measured in the
literature by two methods, either by the percentage of newly recruited external and
independent directors or by the attendance rate of former directors in the AC (independent or
non-independent). The last replaced the proportion of new independent directors to the extent
that any extension of the mandate was aimed at rooting the director regardless of their type.
As revealed in Table 1, previous studies put forward different proposals on the proportion of
independent directors:
Many studies revealed the existence of a positive impact between the percentage of
independent members on the AC and FP (Dinu and Nedelcu, 2015; Aminul et al., 2018; Ashari
and Krismiaji, 2020). Independent experts give ACs significant potential to provide effective
oversight (Beasley et al., 2009). Independence provides auditors with the necessary autonomy
to detect errors, reveal challenges without pressure and make the right decisions in a timely
and unrestricted manner. The number of external directors is directly related to the level of
profit sharing and investment of the AC members in the governance expertise. They are more
capable of engaging in effective oversight activities than internal administrators. The ACs’

Source Degree of independence

Treadway Commission All members should be independent

(1987)a
Vienot (1995) At least two-thirds of the independent directors and no corporate officer
Blue Ribbon Committee All members should be independent
(1999)b, c
Sarbanes–Oxley Act (2002) All members should be independent (301)
Saucier (2001)d 100% of the non-real members (independent but able to benefit from a stock
option)
Bouton (2002) At least two-thirds of the independent directors and no corporate officer (P.12)
The 8th European Directive At least one member must be independent. Member states are free to lay down
e
(2006) other rules concerning the composition of the AC (Article 41–1)
Note(s): aTreadway Commission. (1987). Report of the national commission on fraudulent financial reporting.
Treadway Commission
b
Blue Ribbon Committee (BRC). (1999). Report and recommendations of the blue ribbon committee on
improving the effectiveness of corporate audit committee. New York stock exchange and national association
of securities dealers
c
Millstein, I.M. (1999). Report of the blue ribbon committee on improving the effectiveness of corporate audit
committees. Business Lawyer, 54 (3), 1057–1066
d
Table 1. Saucier, G. (2001). Beyond compliance, governance. The institute of chartered accountants and Toronto stock
Literature review of the eexchange. Final report Joint committee on corporate governance
proposed proportion of The 8th European Directive. (2006). https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?
independent directors uri5CELEX:32006L0043&rid53
in the AC Source(s): https://drive.google.com/file/d/1Zk2EMEYjuprdATa1LYq84Br8a8GbgnH7/view
responsibilities provide shareholders with the control process and provide sufficient The effect of
assurance of independent auditing (Deloitte, 2007). Besides that, a significant number of audit
external auditors facilitates the dispersal of administrators’ attention during the discussion of
missions and tasks (Krishnan, 2005). Some researchers expect that the proportion of
committee
independent directors on the AC allows the latter to improve the quality of the preparation quality
process of the financial statements of conventional and Islamic banks. As a result, this policy
of selecting auditors stimulates increased reliability of the financial statements. Another
current showed that the level of AC independence was positively associated with the financial 235
information quality (Mangena and Tauringana, 2007) and negatively related to the
propensity to manage the outcome (Abbott et al., 2004).
Other studies concluded that the ACs’ independence had a positive influence on
accounting restatements, abnormal regularizations of their profits, and the interests of
owners against management conflicts (Assenga et al., 2018). Recently and similarly, Poretti
et al. (2018) stated that higher AC independence increased the autonomy of their declarations
and encouraged market reactions to the announcements of results.
After the variant exposure of the results found in the governance literature, we tested the
proposition of the following hypothesis:
H3. There is a positive correlation between the percentage of independent directors
within the AC and the FP of conventional and Islamic banks.

2.4 Number of meetings held by the audit committee

The number of meetings as a determinant of the ACQ showed that it was the best indicator of
the effectiveness of this governance body (Abbott et al., 2004; Gendron and Bedard, 2006).
Many studies focused on the effect of the number of meetings on the FP (Dinu and Nedelcu;
2015; Shahkaraiah and Amiri, 2017). This association gives more importance to the effect of
this determinant in the precision of the ACQ and questions the impact of the number of
meetings held by the ACs of the conventional and Islamic banks on their FPs.
Several previous studies concluded that there was a negative correlation between the
number of meetings held and FP (Aminul et al., 2018; Awinbugri and Prince, 2019). In this line
of research, Cornett et al. (2009) tested the association between the number of AC meetings
and the performance effectiveness of Thai non-life insurance companies for the period of
(2000–2007). It revealed the existence of a negative impact between the number of AC
meetings and the FP effectiveness. Moreover, Aminul et al. (2018) examined the effect of
board characteristics on the quality of earnings, moderated by the audit quality and the
ownership concentration. In this study, the board of directors’ effectiveness was measured by
the AC’s determinants. They considered the AC to be complementary to the board’s role in
monitoring the profit report. They revealed that the number of AC meetings had a negative
impact on the results’ quality (Awinbugri and Prince, 2019).
From what is already stated in the literature, our hypothesis is as follows:
H4. The number of meetings held by the AC has a negative impact on the FP of
conventional and Islamic banks.

3. Empirical method
To choose the bank model that had the most qualified AC for improving FP, we used the
conditional method of collecting and filtering samples. For that, we selected only the full
observations, which allowed us to generalize the new results. Because of the existence of
autocorrections in three conventional models and two Islamic models (Tables 2 and 3), to
embody this comparison, we used the GLS technique, which was the most convenient method
to obtain the best comparison between the impacts, allowing us to overcome the constraints
between the variables.
AJAR 3.1 Methodological aspects
7,3 To answer the questions already posed in our hypotheses, the following plan was observed:
we started with the presentation of data, then we stated our study variables, and finally, we
exhibited our models.
3.1.1 Data collection. From two independent populations, two independent samples
consisting of 683 Islamic financial institutions and 2,974 conventional financial institutions
were taken. Samples were collected from 30 countries between 2010 and 2019, but we
236 ignored all financial institutions guided by specific standards. The selected samples
contained only fully Conventional or Islamic banks. In addition, we shut out all
observations containing missing data, as well as banks with various typical statuses.
Although our objective was to obtain two equal samples, we proceeded to filter several of
them based on qualitative and quantitative criteria (e.g., activity type, bank width,
similarity of home country, samples equality) until each IB had a similar CB in the same
country. Finally, we obtained two equal samples, each containing 1,120 observations (bank/
year). The banks are located in Algeria (3), Bahrain (6), Bangladesh (4), Canada (1), Egypt
(4), France (2), India (2), Indonesia (4), Jordan (4), Kazakhstan (3), Kuwait (6), Lebanon (2),
Luxembourg (2), Malaysia (7), Nigeria (2), Oman (3), Pakistan (8), Qatar (6), Saudi Arabia (9),
Senegal (3), Singapore (4), South Africa (1), Sri Lanka (1), Sudan (5), Thailand (1), Tunisia (2),
Turkey (5), United Arab Emirates (5), United Kingdom (5), and USA (2). Since we worked
with a conditional method, we extended the field of selection of observations to four
continents, firstly to aggravate the samples’ sizes and secondly to obtain representative
and suitable results for the generalization.
3.1.2 Modeling variables. 3.1.2.1 Variables to explain. As we have already mentioned, the
variable we wanted to explain was FP. This variable was symbolized by four measurable
parameters which were profitability, efficiency, liquidity and solvency. Table 4 summarizes
the measures’ characteristics.
3.1.2.2 Explanatory variables. The FPs of conventional and Islamic banks were explained
by four AC determinants. Table 5 provides a detailed description of each variable.
3.1.2.3 Control variables. In order to control the partial effects of the basic variables, we
added four control variables to our models. Table 6 defines the targeted variables that we saw
based on the literature review, that could have an impact on the banks’ FP.

Model type Wooldridge test Durbin Watson test F Pr Decision

LnProcit Wooldridge test – 12.097 0.0014 < 5% Presence of autocorrelation

Effcit – Durbin Watson test 50.482 0.0000 < 5% Presence of autocorrelation
Table 2. Liqcit Wooldridge test – 21.187 0.0001 < 5% Presence of autocorrelation
Autocorrelation tests LnSolcit Wooldridge test – 1.709 0.1988 > 5% Absence of autocorrelation
of the CBs/model Source(s): https://drive.google.com/file/d/1ehyi5wfDNzRrzsQC0jUloukFuZxCTuC-/view

Model type Wooldridge test Durbin Watson test F Pr Decision

LnProiit – Durbin Watson test 58.695 0.0000 < 5% Presence of autocorrelation

Effiit – Durbin Watson test 1.302 0.2609 > 5% Absence of autocorrelation
Table 3. Liqiit Wooldridge test – 0.096 0.7577 > 5% Absence of autocorrelation
Autocorrelation tests LnSoliit Wooldridge test – 87.514 0.0000 < 5% Presence of autocorrelation
of the IBs/model Source(s): https://drive.google.com/file/d/1ehyi5wfDNzRrzsQC0jUloukFuZxCTuC-/view
 3.1.3 Models to estimate. In accordance with the objective of our research, this tool gave us The effect of
partial impacts from each submodel of each FP measure. We then compared the effects of audit
each submodel and each bank type with the same determinants’ impacts of their
counterparts. In what follows, we expose the complete models to be estimated.
committee
quality

CBs’ IBs’ 237

FP measurement rating rating Measurement References

Profitability Proc Proi Marginal profit/total revenues Ogbeide and Akanji

ratio (2018)
Liquidity ratio Liqc Liqi
Net loans/total assets Elsiefy (2013)
Efficiency ratio Effc Effi
Operating result/average total Emilia and Judit (2012)
assets Table 4.
Solvency ratio Solc Soli Total loans/total deposits Norhidayah et al. (2011) Description of the
Source(s): https://drive.google.com/file/d/1KghOXuplGFJ4SzKpBSvgCsOXoLwvtaAZ/view variables to explain

The internal
governance
mechanism CBs’ rating IBs’ rating Measurement References

Audit committee Size of the CB’s AC Size of the IB’s AC

Number of directors or Thu et al.
(TCOMc) (TCOMi) auditors in the AC (2016)
Competence of the Competence of the
Binary variable Bilal et al.
CB’s AC IB’s AC 1: if there is an (2018)
(PRESEXPc) (PRESEXPi)
accountant, a financier
or an auditor on the AC
0: if not
Independence of the Independence of the Number of independent Bilal et al.
CB’s AC (INDCOMc) IB’s AC (INDCOMi) directors in the AC (2018)
Number of the AC Number of the AC Number of meetings Cornett et al.
meetings of the CB meetings of the IB held by the AC during a (2009) Table 5.
(REUCOMc) (REUCOMi) year Description of the
Source(s): https://drive.google.com/file/d/1F6DJsbmKGGRZbv1umxUSSYlIyx7WwHPR/view explanatory variables

Control CBs’ IBs’

variable rating rating Measurement References

Bank type TYc TYi A qualitative variable that takes three modalities Thomi (2014)
(1) if the bank is commercial
(2) if the bank is investment
(3) if the bank is universal
Bank age AGc AGi Age of the Islamic or conventional bank for each Arif et al. (2017)
year
Bank size TAc TAi Logarithm of the total assets of Islamic or Rashid et al.
conventional bank (2020)
Inflation INFc INFi The inflation rate in the country of origin of the Nahar and Sarker Table 6.
Islamic or conventional bank (2016) Description of control
Source(s): https://drive.google.com/file/d/1yvMlc6HMxMxCAod6ix2clXqveNCgA2IZ/view variables
AJAR Conventional multiple regression is:
7,3 Association between FP measures of CBs and ACQ:
Ycit ¼ α0 þ α1 LnTCOMcit þ α2 LnPRESEXPcit þ α3 LnINDCOMcit
þα4 LnREUCOMcit þ α5 TYcit þ α6 LnAGcit þ α8 LnINFcit þ εit

Ycit can be ðLnProcit ; Effcit ; Liqcit ; LnSolcit Þ

238 Islamic multiple regression is:
Association between FP measures of IBs and ACQ:
Yiit ¼ β0 þ β1 LnTCOMiit þ β2 LnPRESEXPiit þ β3 LnINDCOMiit
þβ4 LnREUCOMiit þ β5 TYiit þ β6 LnAGiit þ β8 LnINFiit þ εit

Yiit can be ðLnProiit ; Effiit ; Liqiit ; LnSoliit Þ

3.2 Multivariate analysis: regressions stability test (Chow test (Appendix) [2])
Tables 7–18 show the results of the Chow test for each FP measurement, as well as the results
of the two unique models from each sample.
3.2.1 Model of the AC effects on the banks’ profitability. From the analysis of variance test,
we retained that the calculated Fisher statistics (CFS) was greater than the tabulated statistics,

Sig
Source Degree of freedom Sum of squares Average squares F Prob > F

Model LnProit 8 54.1659753 6.77074691 8.56 0.0000

Table 7. Residuals 2,002 277.63748 0.790989973 – –
ANOVAa test of the Total 2,010 331.803456 0.924243609 – –
overall sample Note(s): aANOVA 5 analysis of variance
profitability Source(s): https://drive.google.com/file/d/18I_cxB4clZcK9QqDFusb7iuoUYZIHVm3/view

Sig
Source Degree of freedom Sum of squares Average squares F Prob > F

Model LnProcit 8 42.8148672 5.3518584 6.57 0.0000

Table 8. Residuals 994 152.44223 0.815199089 – –
ANOVA test of the Total 1,004 195.257097 1.00131845 – –
CBs’ profitabilities Source(s): https://drive.google.com/file/d/18I_cxB4clZcK9QqDFusb7iuoUYZIHVm3/view

Sig
Source Degree of freedom Sum of squares Average squares F Prob > F

Model LnProiit 8 32.7361929 4.09202411 6.33 0.0000

Residuals 885 100.248411 0.646763944 – –
Total 993 132.984604 0.815856467 – –
Note(s): N 5 2,224 and k 5 9
Fp → (9; 2,206)
− ðRSS1þRSS2Þ N − 2k − ð152:442þ100:248Þ 2224 − ð29Þ
Table 9. Fcp ¼ RSS RSS1þRSS2 * k ¼ 277:637
ð152:442þ100:248Þ * 9 ¼ 24:198 > 1:59
ANOVA test of the IBs’ where Fcp: F calculated of the profitability
profitabilities Source(s): https://drive.google.com/file/d/18I_cxB4clZcK9QqDFusb7iuoUYZIHVm3/view
so we accepted the stability hypothesis. We concluded that the AC coefficients relating to the The effect of
profitability-specific models of the conventional and Islamic banks were unalterable. audit
3.2.2 Model of the AC effects on the banks’ efficiency. The analysis of variance test
indicated that the CFS was greater than the tabulated statistics, for which we accepted the
committee
null hypothesis. We approved that the AC coefficients relating to the efficiency-specific quality
models of conventional and Islamic banks were stable.
3.2.3 Model of the AC effects on the banks’ liquidity. Analysis of variance showed that the
CFS was greater than the tabulated statistics, in which case we adopted the null hypothesis. 239
We confirmed that the AC coefficients relative to the liquidity-specific models of the
conventional and Islamic banks were stable.

Sig
Source Degree of freedom Sum of squares Average squares F Prob > F

Model Eff it 8 65.1302574 8.14128217 6.94 0.0000 Table 10.

Residuals 1,996 402.399295 1.17317579 – – ANOVA test of the
Total 2,004 467.529553 1.33199303 – – overall sample
Source(s): https://drive.google.com/file/d/1EAo1qaSq069gmyItAaombSFxEraziqLb/view efficiency

Sig
Source Degree of freedom Sum of squares Average squares F Prob > F

Model Effcit 8 74.2900002 9.28625002 7.40 0.0000

Residuals 994 227.230502 1.25541714 – – Table 11.
Total 1,002 301.520503 1.59534657 – – ANOVA test of the
Source(s): https://drive.google.com/file/d/1EAo1qaSq069gmyItAaombSFxEraziqLb/view CBs’ efficiencies

Sig
Source Degree of freedom Sum of squares Average squares F Prob > F

Model Effiit 8 0.044575637 0.005571955 4.38 0.0001

Residuals 999 0.234211487 0.001272889 – –
Total 1,007 0.278787124 0.001452016 – –
Note(s): N 5 2,224 and k 5 9
Fe → (9; 2,206)
− ðRSS1þRSS2Þ N − 2k − ð227:230þ0:234Þ 2224 − ð29Þ
Fce ¼ RSS RSS1þRSS2 * k ¼ 402:399
ð227:230þ0:234Þ * 9 ¼ 188:506 > 1:59 Table 12.
where Fce 5 F calculated of the efficiency ANOVA test of the IBs’
Source(s): https://drive.google.com/file/d/1EAo1qaSq069gmyItAaombSFxEraziqLb/view efficiencies

Sig
Source Degree of freedom Sum of squares Average squares F Prob > F

Model Liqit 8 1.83051405 0.228814256 6.22 0.0000 Table 13.

Residuals 1,997 14.9053291 0.036803282 – – ANOVA test of the
Total 2,005 16.7358431 0.040522623 – – overall sample
Source(s): https://drive.google.com/file/d/1a1IDaPiTPwIOERaTqZzAtyaBz7MDzShH/view liquidity
AJAR 3.2.4 Model of the AC effects on the banks’ solvency. The solvency model variances revealed
7,3 that the CFS was weaker than the tabulated statistics. That is why we immediately rejected
the stability hypothesis for these models. Therefore, we concluded that the AC coefficients
relating to the solvency-specific models of the conventional and Islamic banks were not
stable.

4. Empirical results
240 To value the impact of ACQ on the FP in each bank type, it was necessary to estimate the
partial impacts provided by each AC variable in each model. To complete this work, we
compared similar partial impacts across multiple linear models. Since the effects resulting
from the models could be insignificant, positive or negative, we insisted only on the

Sig
Source Degree of freedom Sum of squares Average squares F Prob > F

Model Liqcit 8 1.15631667 0.144539584 5.18 0.0000

Table 14. Residuals 888 5.9120502 0.027887029 – –
ANOVA test of the Total 996 7.06836687 0.03212894 – –
CBs’ liquidities Source(s): https://drive.google.com/file/d/1a1IDaPiTPwIOERaTqZzAtyaBz7MDzShH/view

Sig
Source Degree of freedom Sum of squares Average squares F Prob > F

Model Liqiit 8 1.54503819 0.193129773 4.63 0.0000

Residuals 998 7.68004327 0.041739366 – –
Total 1,006 9.22508146 0.048047299 – –
Note(s): N 5 2,224 and k 5 9
Fl → (9 ; 2,206)
− ðRSS1þRSS2Þ N − 2k − ð5:912þ7:680Þ 2224 − ð29Þ
Table 15. Fcl ¼ RSS RSS1þRSS2 * k ¼ 14:905
ð5:912þ7:680Þ * 9 ¼ 23:677 > 1:59
ANOVA test on the where Fcl 5 F calculated of the liquidity
IBs’ liquidities Source(s): https://drive.google.com/file/d/1a1IDaPiTPwIOERaTqZzAtyaBz7MDzShH/view

Sig
Source Degree of freedom Sum of squares Average squares F Prob > F

Table 16. Model LnSolit 8 275.527625 14.501454 2.08 0.0365

ANOVA test of the Residuals 1,991 1034.58404 2.8979945 – –
overall sample Total 1,999 1310.11166 3.48433953 – –
solvency Source(s): https://drive.google.com/file/d/1nViRb5sSSPCXLVUcw2dECtzqTfqGajri/view

Sig
Source Degree of freedom Sum of squares Average squares F Prob > F

Model LnSolcit 8 6.97821471 0.872276839 3.15 0.0022

Table 17. Residuals 996 58.7799263 0.277263803 – –
ANOVA test of the Total 1,004 65.7581411 0.298900641 – –
CBs’ solvencies Source(s): https://drive.google.com/file/d/1nViRb5sSSPCXLVUcw2dECtzqTfqGajri/view
significant variables which explained the impacts’ quality in each model and consequently The effect of
the quality of the AC’s determinants. In what follows, Tables 19–26 illustrate the different audit
effects of different AC’s determinants on the different FP measures for each bank type.
committee
4.1 Interpretation of the comparative results of the AC determinants’ impacts on the FP
quality
measures of the conventional and Islamic banks
4.1.1 Impacts of the ACQ on the profitability of conventional and Islamic banks. The results of
the correlation between the CBs’ profitabilities and the auditing system were most
241
statistically significant. Table 19 illustrates the parameters of the effects between the

Sig
Source Degree of freedom Sum of squares Average squares F Prob > F

Model LnSoliit 8 110.672255 13.8340318 2.25 0.0258

Residuals 992 1132.02882 6.15233055 – –
Total 1,000 1242.70108 6.47240144 – –
Note(s): N 5 2,224 and k 5 9
Fs → (9 ; 2,206)
− ðRSS1þRSS2Þ N − 2k − ð58:779þ1132:028Þ 2224 − ð29Þ
Fcs ¼ RSS RSS1þRSS2 * k ¼ 1034:584
ð58:779þ1132:028Þ * 9 ¼ −32:156 < 1:59 Table 18.
where Fcs 5 F calculated of the solvency ANOVA Test of the
Source(s): https://drive.google.com/file/d/1nViRb5sSSPCXLVUcw2dECtzqTfqGajri/view IBs’ solvencies

LnProc Coefficient Std. err Z P > jzj [95% Conf. interval]

LnTCOMc 0.3690006 0.3122912 1.18 0.019** 0.9850671 0.2470659

LnPRESEXPc 0.3256752 0.1707604 1.91 0.058* 0.0111891 0.6625395
LnINDCOMc 0.2007704 0.1353857 1.48 0.014** 0.46785 0.0663092
LnREUCOMc 0.7691618 0.1381292 5.57 0.000*** 1.041653 0.4966701
TYc 0.0459267 0.1075946 0.43 0.670 0.1663286 0.258182
LnAGc 0.2706567 0.1054468 2.57 0.001*** 0.0626385 0.4786749
LnTAc 0.1641456 0.2123066 0.77 0.023** 0.2546783 0.5829695
LnINFc 0.310217 0.1021077 3.04 0.003*** 0.5116481 0.1087859
Constant 3.930467 0.7296175 5.39 0.000 2.491128 5.369806 Table 19.
Note(s): * Correlation is significant at the 0.10 level; ** Correlation is significant at the 0.05 level; Regression results of
*** Correlation is significant at the 0.01 level the AC’s impacts on the
Source(s): https://drive.google.com/file/d/1zr0D_kdjO3advHF23hSyj15EeNOiY2TY/view CBs’ profitability

LnProi Coefficient Std. err Z P > jzj [95% Conf. interval]

LnTCOMc 0.7456123 0.3303697 2.26 0.025** 0.0930042 1.39822

LnPRESEXPc 0.1899257 0.1819712 1.04 0.006*** 0.5493892 0.1695378
LnINDCOMc 0.3311608 0.1371441 2.41 0.017** 0.6020736 0.0602481
LnREUCOMc 0.0635436 0.1378169 0.46 0.645 0.3357853 0.2086981
TYc 0.2751691 0.1047932 2.63 0.010*** 0.0681619 0.4821763
LnAGc 0.1788393 0.0933347 1.92 0.000*** 0.0055329 0.3632115
LnTAc 0.7546426 0.3303035 2.28 0.024** 1.40712 0.1021653
LnINFc 0.6660688 0.1191256 5.59 0.000*** 0.9013879 0.4307496 Table 20.
Constant 3.865778 0.7613688 5.08 0.000 2.36178 5.369776 Regression results of
Note(s): ** Correlation is significant at the 0.05 level; *** Correlation is significant at the 0.01 level the AC’s impacts on the
Source(s): https://drive.google.com/file/d/190xC-_q6vxJ1oPSoEHwXdq8JCQeUXkVs/view IBs’ profitability
AJAR Effc Coefficient Std. err Z P > jzj [95% Conf. interval]
7,3
LnTCOMc 0.5635711 0.3854691 1.46 0.095* 0.1970199 1.324162
LnPRESEXPc 0.506293 0.2114613 2.39 0.018** 0.9235392 0.0890467
LnINDCOMc 0.3365649 0.1692185 1.99 0.048** 0.6704596 0.0026701
LnREUCOMc 0.2915094 0.1725128 1.69 0.003*** 0.6319043 0.0488855
TYc 0.0216742 0.1403389 0.15 0.877 0.2985849 0.2552366
242 LnAGc 0.3503843 0.132294 2.65 0.009*** 0.0893475 0.611421
LnTAc 0.7260411 0.2902967 2.50 0.013** 1.298842 0.1532401
LnINFc 0.4523007 0.1265786 3.57 0.000*** 0.2025413 0.7020601
Table 21. Constant 3.639358 0.9526918 3.82 0.000 5.519168 1.759547
Regression results of Note(s): * Correlation is significant at the 0.10 level; ** Correlation is significant at the 0.05 level;
the AC’s impacts on the *** Correlation is significant at the 0.01 level
CBs’ efficiency Source(s): https://drive.google.com/file/d/1YOP2GsdZQ9dhSiH5DHc7mkBIqah0BeGi/view

Effi Coefficient Std. err Z P > jzj [95% Conf. interval]

LnTCOMi 0.5635711 0.3854691 1.46 0.002*** 0.1970199 1.324162

LnPRESEXPi 0.506293 0.2114613 2.39 0.018** 0.9235392 0.0890467
LnINDCOMi 0.3365649 0.1692185 1.99 0.048** 0.6704596 0.0026701
LnREUCOMi 0.2915094 0.1725128 1.69 0.093* 0.6319043 0.0488855
TYi 0.0216742 0.1403389 0.15 0.055* 0.2985849 0.2552366
LnAGi 0.3503843 0.132294 2.65 0.009*** 0.0893475 0.611421
LnTAi 0.7260411 0.2902967 2.50 0.013** 1.298842 0.1532401
LnINFi 0.4523007 0.1265786 3.57 0.000*** 0.2025413 0.7020601
Table 22. Constant 3.639358 0.9526918 3.82 0.000 5.519168 1.759547
Regression results of Note(s): * Correlation is significant at the 0.10 level; ** Correlation is significant at the 0.05 level;
the AC’s impacts on the *** Correlation is significant at the 0.01 level
IBs’ efficiency Source(s): https://drive.google.com/file/d/1uQo-U_mQhEfbbdfLJiOGEK1ixGt6MgsJ/view

Liqc Coefficient Std. err Z P > jzj [95% Conf. Interval]

LnTCOMc 0.0230827 0.0132145 1.75 0.064* 0.0491541 0.0029887

LnPRESEXPc 0.0027156 0.0068792 0.39 0.693 0.0108566 0.0162878
LnINDCOMc 0.0001795 0.005707 0.03 0.975 0.01108 0.0114391
LnREUCOMc 0.0053715 0.0058016 0.93 0.006*** 0.0060748 0.0168178
TYc 0.0001909 0.004128 0.05 0.963 0.0083351 0.0079534
LnAGc 0.0097612 0.0031573 3.09 0.002*** 0.0035321 0.0159903
LnTAc 0.0276267 0.0112254 2.46 0.000*** 0.0054796 0.0497737
Table 23. LnINFc 0.0050449 0.0047604 1.06 0.001*** 0.004347 0.0144368
Regression results of Constant 0.0618575 0.0255779 2.42 0.017 0.1123213 0.0113938
the AC’s impacts on the Note(s): * Correlation is significant at the 0.10 level; *** Correlation is significant at the 0.01 level
CBs’ liquidity Source(s): https://drive.google.com/file/d/1sFDe0s77tVI3rFXNVlUZaNLALsKZt1Pt/view

profitability and the set of variables subject to the test. Based on the table below, the AC
coefficients revealed two conclusions. LnTCOMc, LnINDCOMc and LnREUCOMc negatively
and significantly affected the CBs’ profitability at the 5, 5 and 1% levels, respectively.
Nonetheless, LnPRESEXPc reported a favorable and significant impact on the CBs’
profitability at the 10% threshold. The results analysis for the control variables showed that
LnINFc seriously affected the CBs’ profitability at the 1% threshold, while LnAGc and
Liqi Coefficient Std. err Z P > jzj [95% Conf. interval]
The effect of
audit
LnTCOMi 0.0103563 0.0536024 0.19 0.847 0.1160183 0.0953058 committee
LnPRESEXPi 0.0355094 0.0292879 1.21 0.227 0.0222234 0.0932423
LnINDCOMi 0.0001826 0.0236885 0.01 0.001*** 0.0465126 0.0468778 quality
LnREUCOMi 0.0619193 0.0241388 2.57 0.000*** 0.0143365 0.1095022
TYi 0.0198306 0.0184098 1.08 0.283 0.0561204 0.0164592
LnAGi 0.0271863 0.0180877 1.50 0.034** 0.0084685 0.0628411 243
LnTAi 0.0996069 0.034553 2.88 0.004*** 0.1677184 0.0314955
LnINFi 0.0798724 0.0179172 4.46 0.000*** 0.1151912 0.0445537 Table 24.
Constant 0.7640561 0.119199 6.41 0.000 0.5290891 0.9990231 Regression results of
Note(s): ** Correlation is significant at the 0.05 level; *** Correlation is significant at the 0.01 level the AC’s impacts on the
Source(s): https://drive.google.com/file/d/14v7xK3pqWGi01XaS-6I1uBgAUHiz2mHG/view IBs’ liquidity

LnSolc Coefficient Std. err Z P > jzj [95% Conf. interval]

LnTCOMc 0.0192461 0.0756708 0.25 0.002*** 0.130048 0.1685402

LnPRESEXPc 0.0017022 0.0393925 0.04 0.006*** 0.0760169 0.0794213
LnINDCOMc 0.0731493 0.0326802 2.24 0.226 0.1376254 0.0086733
LnREUCOMc 0.03582 0.0332222 1.08 0.000*** 0.0297254 0.1013653
TYc 0.0013657 0.0236383 0.06 0.954 0.0452713 0.0480027
LnAGc 0.005686 0.0180797 0.31 0.753 0.0299841 0.0413561
LnTAc 0.2723791 0.0642805 4.24 0.000*** 0.1455574 0.3992008
LnINFc 0.0366407 0.0272595 1.34 0.001*** 0.0904222 0.0171407 Table 25.
Constant 0.0203986 0.1464682 0.14 0.889 0.3093716 0.2685743 Regression results of
Note(s): *** Correlation is significant at the 0.01 level the AC’s impacts on the
Source(s): https://drive.google.com/file/d/1yjfd6XunbuRPYkqljyhjGMVQsYJTz-y8/view CBs’ solvency

LnSoli Coefficient Std. err Z P > jzj [95% Conf. interval]

LnTCOMi 0.257406 0.1690168 1.52 0.009*** 0.5905748 0.0757628

LnPRESEXPi 0.1461662 0.0923494 1.58 0.032** 0.0358745 0.3282069
LnINDCOMi 0.0316474 0.0746935 0.42 0.017** 0.1155897 0.1788846
LnREUCOMi 0.152596 0.0761134 2.00 0.056* 0.00256 0.3026321
TYi 0.138241 0.0580491 2.38 0.018** 0.2526684 0.0238136
LnAGi 0.0182011 0.0570333 0.32 0.750 0.1306261 0.094224
LnTAi 0.0705174 0.108951 0.65 0.518 0.2852834 0.1442486
LnINFi 0.1730838 0.0564959 3.06 0.002*** 0.2844495 0.0617182
Constant 0.5057693 0.3758529 1.35 0.180 0.2351183 1.246657 Table 26.
Note(s): * Correlation is significant at the 0.10 level ** Correlation is significant at the 0.05 level; Regression results of
*** Correlation is significant at the 0.01 level the AC’s impacts on the
Source(s): https://drive.google.com/file/d/12aV5sGw9G8Jqn_cW9foCHr_hEOxKyLO_/view IBs’ solvency

LnTAc positively influenced profitability at significant levels of 1 and 5%, respectively.

According to Table 19, assumptions H1 and H4 were confirmed. However, assumptions H2
and H3 were ignored.
According to Table 20, the correlation between the AC characteristics and the IBs’
profitabilities indicated that most coefficients of this model were statistically significant. We
found that there were only two AC determinants that had important significance at the 5%
level. LnTCOMi revealed a positive effect on profitability, while LnINDCOMi negatively
AJAR affected it. However, LnPRESEXPi negatively and significantly impacted the IBs’
7,3 profitability at the 1% threshold. The other AC characteristic showed a negative and
insignificant effect. In terms of the auxiliary variables, LnTAi and LnINFi negatively and
significantly affected the IBs’ profitabilities at the 5 and 1% levels, respectively. Nevertheless,
TYi and LnAGi adopted positive and significant signs on profitability at the threshold of 1%.
From the deliberate conclusions, we accepted only the second hypothesis. On the contrary,
Hypotheses 1, 3, and 4 were rejected.
244 4.1.2 Impacts of the ACQ on the efficiency of conventional and Islamic banks. According to
Table 21, the specific model of the CB efficiency proved the presence of some statistically
significant variables in the exhaustive list of the variables. Dealing with the effect of
dependence between the AC’s determinants and the CB efficiency concluded that three AC
determinants that generated significant and negative impacts on the effectiveness of the CBs’
ACs at the 5% level (LnPRESEXPc and LnINDCOMc), and at the 1% level (LnREUCOMc). On
the contrary, we recorded that LnTCOMc revealed a positive impact on the efficacy at the
level of 10%. The empirical results also showed that TYc, LnAGc and, LnINFc generated a
positive sign, notwithstanding these impacts, and only those that corresponded to LnAGc
and LnINFc were significant at the 1% threshold. While LnTAc reported a negative impact
on the CBs’ efficiencies, it reaches the level of 5% significance. Consequently, Hypotheses 2
and 4 were accepted, but Hypotheses 1 and 3 were rejected.
Referring to Table 22, this model supported some influential variables in valuing the ACQ
in relation to IB efficiency. It revealed that all variables were significant. Similarly, the results
specific to the impact of the AC determinants on the IB effectiveness showed that LnTCOMi
and LnINDCOMi negatively and significantly affected the IB efficiency at the respective rates
of 1 and 5%, whereas the other determinants positively and significantly influenced the IB
efficiency. The impact of the LnPRESEXPi was significant at the level of 5%; however,
LnREUCOMi was significant at the level of 10%. Regarding the control variables, all of them
had a positive impact on the IB efficiency. Among these variables, the LnAGi and LnINFi had
significant and influential effects at the 1% threshold, and LnTAi was significant at the 5%
threshold, while TYi was significant at the 10% threshold. This illustration convinced us to
validate Hypothesis 1 in the IB framework, while Hypotheses 2, 3 and 4 are rejected.
4.1.3 Impacts of the ACQ on the liquidity of conventional and Islamic banks. Table 23
includes the results of the CB liquidity model. The provided coefficients indicated that only a
few variables were statistically significant. The results underlined that this model was the
least significant in the set of estimated regressions. The analysis showed that LnPRESEXPc
and LnINDCOMc had negatively affected the CB liquidity, but these effects were
insignificant. Nonetheless, LnTCOMc and LnREUCOMc played a fundamental role in
forcing the liquidity production cycle at the levels of 10 and 1%, respectively. Focusing on the
impacts of the control variables on liquidity, we found that TYc, LnTAc and LnINFc
negatively affected the cash flow, though not necessarily significantly, except that the
impacts received by LnTAc and LnINFc were significant at the 1% level. However, LnAGc ’s
liquidity strength was positive and significant at the 1% rate. This is why we ignored all our
hypotheses.
As shown in Table 24, the attributes of the IB liquidity model revealed that it was of
globally fair quality, since there were only a few variables that were statistically significant.
The liquidity model gave rise to coefficients with positive signs just like LnPRESEXPi and
LnREUCOMi, but only LnREUCOMi was significant at the rate of 1%. Nonetheless, the
effects on LnTCOMi and LnINDCOMi were negative, but only LnINDCOMi effectively
affected the IB liquidity at the 1% level. Regarding the effects of the additional variables on
the IB liquidity, the combinatorial effect generated by LnAGi and LnTAi was a stimulator for
the IB liquidity, even though LnAGi showed a significant impact at the level of 5%, while
LnTAi recorded a significant impact at the level of 1%. However, TYi and LnINFi negatively
affected the IB liquidity. By way of exception, only LnINFi deteriorated the available liquidity The effect of
pool at a rate of 1%. For this reason, we validated the first hypothesis in the case of IBs. After audit
all, Hypotheses 2, 3 and 4 were rejected.
4.1.4 Impacts of the ACQ on the solvency of conventional and Islamic banks. The results of
committee
the estimated model of CB solvency showed that most of the impacts were statistically quality
significant. This model was considered among the most significant models that remained. In
the following, based on Table 25, the signs of an AC’s determinants revealed that
LnPRESEXPc and LnREUCOMc improved the CB solvency ratio at the level of significance 245
of 1%. On the contrary, LnTCOMc and LnINDCOMc lowered the CB solvency, but only
LnTCOMc was extremely significant at the 1% level. The results revealed that all other
control variables showed a worrisome impact on the continued CB solvency, but only the
relative impacts of LnTAc and LnINFc were significant at the 1% threshold. As a result, we
confirmed only Hypothesis 1 in the context of CBs, but we explicitly rejected Hypotheses 2,
3 and 4.
The results of the IB solvency model revealed that there was an average number of
variables whose impacts were statistically significant. Table 26 illustrates that three AC
determinants exerted pressure to deteriorate the IB solvency, such as LnPRESEXPi,
LnINDCOMi, and LnREUCOMi. Nonetheless, the effects related to LnPRESEXPi and
LnINDCOMi were significant at the 5% level, but the LnREUCOMi impact was significant
just at the level of 10%, whereas, LnTCOMi protected the IB solvency significantly at the 1%
threshold. Symmetrically, we appreciated that TYi and LnTAi informed us about their
favorable effects on solvency, but also, we indicated that only the impact of TYi was
significant at the limit of 5%. However, we reported that LnAGi and LnINFi recorded
prodigious negative effects, but only inflation reported a significant impact on solvency at the
1% level. These results allowed us to validate Hypotheses 2 and 4. On the contrary,
assumptions H1 and H3 are rejected.
Before concluding, it is important to note that the mono-analysis showed confusion for
confirming or infirming our hypotheses from a single FP measure. Furthermore, not all tested
variables revealed significant impacts on FP measures. The existence of the various signs
allowed us to think differently about a new AC model, allowing us to overcome the problem of
signs ambiguity, give us standard effects for each bank type, eliminate the signs’ diversity,
and constitute an effective and feasible solution to implement it whatever the bank type.

4.2 Analogical study between the significant impacts of the ACQ on the FP measures
Based on the above, we retained that whatever the FP measure, the significant impacts of the
AC’s determinants were not identical between measures of the same bank type and between
equivalent models’ effects for each bank type, and not all the AC determinants revealed
significant impacts on FP measures for each bank type. Thus, it is impossible to compare the
incomparable. To overcome the constraints of mono-analysis which prevented us from
making a final decision on the assumptions due to the diversity of impacts from each
determinant on each FP measure, we created a new method called the Decisive Choice Method
“MCD” to make a final comparative decision. Moreover, this method made it easier for us to
choose the right ACQ and the right bank model through FP. To exceed the diversity of
individual effects, we counted only the variables revealing significant impacts. Table 27
shows the ranking of the significant effects of two bank types according to their signs:
As illustrated in Table 27, before comparing the similar impacts, this method consisted of
ruling out the insignificant impacts and considered only the significant impacts at the limit of
10%. Then we classified the common determinants of ACs that revealed significant impacts
according to the signs between the two bank types. Based on the main results, bringing all the
AC impacts on FP together showed that the ACQ in both bank types weakened a part of their
AJAR Bank type CBs IBs
7,3
Model Positive impact Negative Positive Negative
impact impact impact
Proit LnPRESEXPc LnTCOMc LnTCOMi LnPRESEXPi
LnINDCOMc LnINDCOMi
LnREUCOMc
246 Effit LnTCOMc LnPRESEXPc LnPRESEXPi LnTCOMi
LnINDCOMc LnREUCOMi LnINDCOMi
LnREUCOMc
Liqit LnTCOMc – LnREUCOMi LnINDCOMi
LnREUCOMc
Table 27. Solit LnPRESEXPc LnTCOMc LnTCOMi LnPRESEXPi
Summary of the
LnREUCOMc LnINDCOMi
significant impacts of
the AC’s determinants LnREUCOMi
on FP measurements Reconciliation of similar 6/16 7/16 5/16 8/16
between conventional impacts
and Islamic banks Source(s): https://drive.google.com/file/d/1nJ-qgTDCXhyZ7PoVcD-pdPmyK6-7lQ_S/view

profitability, their efficiency, their liquidity, and their solvency, although their ACs protected
some part of the same FP measures. However, the number of positive impacts of the ACs on
the different CB FP measures was greater than those relating to the IBs. Furthermore, the
ACs’ negative impacts corresponding to the CBs’ FP measures were lower than those relating
to IBs. Therefore, we concluded that the CBs better governed their FP thanks to the AC more
than their Islamic counterparts. Within the IBs, this result was explained by the decline in the
importance of this governance mechanism in favor of other mechanisms, such as the Charia
committee and its weaknesses, in ensuring their role in monitoring FP. Unlike IBs, within the
CBs, the negative impacts outweighed the positive impacts. This indicates the failure of this
mechanism to overhaul, manage, and perfect the CBs’ FPs. According to the literature, we did
not find any comparative studies that exactly studied the AC’s impact on the FPs of two bank
types. In contrast, Salem et al. (2021) examined the impact of ACs on earnings management
through loan loss provisions among both conventional and Islamic banks operating in
MENA countries. They found that the AC size and independence restrained the earnings
management practices of IBs’ managers more than those of CBs’ managers.

5. Conclusion
Based on an analysis of partial effects, our study showed that whatever the bank type, it was
not obvious that listed banks which controlled their ACs’ compositions would necessarily
improve their FPs. Moreover, our results indicated that large banks were neither exempted
nor protected against practices of diversion and methods of devaluing FP, whether by acting
on its measures or by playing on the ACs’ determinants. Although within conventional and
Islamic banks everything is proportional, the presence of inadequacies in the governance
systems of this bank category always causes variability in their FPs. Furthermore, the
volume and complexity of listed bank transactions require a shift in vision toward the role
and location of ACs. From our results, we discovered that the real role of ACs was to bear an
additional responsibility for improving FP, not only as a governance and control mechanism
but also as a continuous monitoring mechanism of the whole process of creation of the FP. By
giving an additional task integrated into the ACs’ accounts, they will become more
responsible to bear the challenges of the ACs’ weaknesses (Nkegbe and Ustarz, 2015;
Saani, 2017).
 From the outputs of our study and, more precisely, based on the percentage of positive The effect of
and negative impacts, we noticed that the IBs’ ACs contributed more to the improvement audit
of their FPs compared with the CBs. However, in the two bank types, the number of
determinants which have negatively influenced FP is very close to that of determinants
committee
which have recorded positive impacts. The negative impacts can be explained in quality
proportion to the bank type. Implicitly, the percentage of non-significant partial impacts in
each bank type is equal to 18.75% of the total number of impacts from ACs on all FP
measures. The presence of non-significant partial impacts on the banking FP provides the 247
failure of these determinants or mechanisms staging their roles in an effective behavioral
attitude, especially those which are directly associated with decision centers. Regardless
of the bank type, an AC is responsible for planning policies and making the best decisions.
It is required to improve the FP and maximize the bank’s profits. However, the lack of FP
affects the credibility and feasibility of implementing a quality governance system. This
embodies two conclusions: there are many substitutable mechanisms behind the
ambiguous effect, and there is a complete failure of the actual governance system that
requires a revision.
Like all research studies, there are a few limitations to note. First, we compared only the
ACs’ effects of conventional and Islamic banks. In future research, we may broaden the scope
of our study through the integration of other types of conventional and Islamic financial
institutions so that it is possible to generalize the results to related financial sectors. Indeed,
this study only dealt with the impact of a few ACs’ determinants on a few FP measures. As a
new research perspective, future studies could test the impact of several other determinants
on a more exhaustive list of FP measures.

Notes
1. Chief Executive Officer.
2. https://drive.google.com/file/d/1_8Nz6t-uki1ucY9qsyc740d75QAV1KAz/view.

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Appendix
The Chow test was used to test the coefficient stability of the regression on two in-dependent samples
through the comparison between the coefficients of two sets of linearly distributed data. The purpose of
this test was to detect the presence of structural changes from breaks in data concentrations (Chow,
1960). The application of this test consisted firstly of estimating the two samples’ regressions together in
a single model, then, evaluating the two models separately for each of the two samples, and finally
checking whether the coefficients of the two models were statistically different.
The steps of this test are outlined as follows:
(1) Collect the residual sum of squares (RSS) after estimation of the whole RSS mother population.
(2) Collect the residual sum of squares RSS1 and RSS2 on the basis of two samples of conventional
and Islamic banks.
(3) Calculate the statistics of the test, following the Fisher law:
RSSðRSS1þRSS2Þ
RSS  ðRSS1 þ RSS2Þ N  2k
F¼ * ¼ k
   F → ðk; N  2kÞ
RSS1 þ RSS2 k RSS1þRSS2
N 2k

The statistics of the test follow Fisher’s law of degrees of freedom ν1 5 k and ν2 5 N1 þ N2  2k, where k
is the number of explanatory variables including the constant and N is the sum of the observations of
two samples N 5 (N1 þ N2), where N1 is the total number of observations of the first sample and N2 is
the total number of observations of the second sample.
4-This test is based on Fisher’s law, where if the calculated statistics (F) are lower than the tabulated
statistics, we reject the hypothesis of the stability of the coefficients. In this case, we conclude that there
is a structural change and vice versa.

About the authors

Achraf Haddad is a Doctor of Financial and Accounting Methods. He is a researcher at a Laboratory of
Economic Sciences at the Faculty of Economic Sciences and Management of Sousse, Tunisia. Moreover,
he is a researcher at a Laboratory of Governance, Finance and Accounting at the Faculty of Economic The effect of
Sciences and Management of Sfax, Tunisia. His research studies deal with finance, Islamic finance,
accounting and governance. Achraf Haddad is the corresponding author and can be contacted at: achraf. audit
[email protected] committee
Anis El Ammari is an Assistant Professor of Accounting and Finance at the Faculty of Economic quality
Sciences and Management of Mahdia, Tunisia. He is now the Department Head of Accounting and
Finance (University of Monastir, Tunisia) and a member of the International Academic Association of
Governance (IAAG, France). The topic of his research activities deals with corporate finance, financial 251
management and financial accounting.
Abdelfattah Bouri is a Professor of Finance at the Faculty of Economic Sciences and Management of
Sfax, Tunisia. He is now the Department Head of Finance at the same faculty and the Director of
Governance, Finance and Accounting Laboratory (University of Sfax, Tunisia). His works concern
several areas of finance such as corporate finance, market finance, behavioral finance, Islamic finance,
governance, entrepreneurship, statistics and econometrics. Moreover, he is also the author of many
finance books.

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