Earnings Management around Islamic Bonds Issuance

We examine whether the religious values underlying Islamic bonds influence issuers' financial reporting behavior. Using a sample of 1316 sukuk tranches issued by publicly listed firms in Malaysia from 2001 to 2014, we find sukuk issuers overstate their earnings in the year preceding sukuk offerings, and in the year subsequent to the offering. We also examine the influence of religious values associated with the parties involved in sukuk issuance on issuers' earnings management. Our results show that a Muslim-dominated board is associated with less earnings management, supporting the idea of Islamic business ethics. (C) 2020 Board of Trustees of the University of Illinois. Published by Elsevier Inc. All rights reserved.