Difference between the Determinants of Operational Risk Reporting in Islamic and Conventional Banks: Evidence from Saudi Arabia

Abstract

In this study, we investigate the operational risk reporting practices of Islamic banking institutions (IBIs) and conventional banks (CBs) in Saudi Arabia. Moreover, we explore the joint effect of banking characteristics, corporate governance and credit rating on the informational content of operational risk disclosure (OpRiskDISC). We use content analysis to collect OpRiskDISC data from annual reports during the period 2008–15. The results for each bank type show that the enhanced OpRiskDISC in IBIs is negatively associated with the number of bank branches, the financial stability of the bank, board meeting frequency, the proportion of independent members and credit rating. The results for CBs demonstrate that a bank’s size and financial stability are positively associated with OpRiskDISC. Conversely, the OpRiskDISC level is negatively affected by board meeting frequency and the number of bank branches. For the overall sample, our empirical results show that bank size, compliance with Sharia requirements and board size have a positive, significant effect on OpRiskDISC, while the number of bank branches and the proportion of independent members on the board have a negative, significant relationship with the disclosure level.