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Comparing the value-relevance of AAOIFI versus IFRS accounting numbers in

the Takaful industry

Article  in  Journal of Islamic Accounting and Business Research · November 2022

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Comparing the
Comparing the value-relevance of value
AAOIFI versus IFRS accounting relevance

numbers in the Takaful industry

Mariem Mejri
Department of Accounting, Prince Sultan University, Riyadh, Saudi Arabia
Received 27 October 2020
Hakim Ben Othman Revised 23 December 2021
1 August 2022
ICN Business School, Universite de Lorraine, CEREFIGE, Nancy, France 28 September 2022
Accepted 1 November 2022
Hussein A. Abdou
Faculty of Business and Justice, University of Central Lancashir, Preston, UK and
Department of Management, Faculty of Commerce, Mansoura University,
Mansoura, Egypt, and
Khaled Hussainey
Department of Accounting, University of Portsmouth, Portsmouth, UK

Abstract
Purpose – This study aims to compare the value relevance of accounting numbers prepared under
the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) standards
with those produced under the International Financial Reporting Standards (IFRS) for Takaful
companies (TC).
Design/methodology/approach – The authors assess the value relevance of accounting numbers using
the Easton and Harris (1991) and Ohlson (1995) return and price models. They also use 54 insurance
companies from 10 developing countries in Asia and the Middle East from 2006 to 2015.
Findings – The analysis shows that book value is significantly related to stock price under AAOIFI and
IFRS. It also shows that TC adopting AAOIFI accounting standards have a more significant effect on stock
price. This suggests that AAOIFI standards are more value relevant than IFRS.
Practical implications – TC and their stakeholders can use the findings to determine which
accounting standards (IFRS or AAOIFI) produce the more relevant accounting information. This
study is useful for investors that consider Islamic ethical practices to make their investment decisions
for the standards-setting bodies that focus on establishing accounting standards for the Takaful
industry.
Originality/value – The authors investigate a new aspect of the topic of value relevance. To the best of the
authors’ knowledge, they believe this is the first paper examining the value relevance of TC’ accounting
information prepared under AAOIFI and IFRS.

Keywords AAOIFI, IFRS, Conventional insurance, Takaful, Value relevance,

Paper type Research paper

JEL classification – G10, G22, M40

Journal of Islamic Accounting and
Declaration of interest statement: The authors declare that they have no significant competing Business Research
financial, professional, or personal interests that might have influenced the performance or © Emerald Publishing Limited
1759-0817
presentation of the work described in this manuscript. DOI 10.1108/JIABR-10-2020-0333
JIABR 1. Introduction
The Islamic finance industry is growing rapidly, and it is important to align accounting for
Islamic finance with conventional global accounting practices. Many Takaful companies
(hereafter, TC) have adopted International Financial Reporting Standards (IFRS) to promote
their financial statements’ quality and move towards the global industry. As one of the most
crucial issues for decision makers worldwide is getting access to relevant information from
financial statements, an appropriate international accounting framework could improve
economic and financial integration:
Relevant financial information is capable of making a difference in the decisions made by users.
Information may be capable of making a difference in a decision even if some users choose not to
take advantage of it or are already aware of it from other sources (Conceptual Framework, 2010:
A33).
Accounting information is usually viewed as relevant when associated with market value
and vice versa (Clarkson et al., 2011). An accounting system should ensure that users have
access to relevant information to assist them in their decision making process, according to
the International Accounting Standards Board (IASB). As a result of such regulatory claims,
many studies have examined how IFRS affect the value relevance of accounting numbers in
many jurisdictions, with mixed results.
Islamic and non-Islamic accounting do not neglect the objective of financial accounting
which is to provide useful information to users to enable them to make a legitimate decision.
More specifically, Accounting and Auditing Organization for Islamic Financial Institutions
(AAOIFI) standards focus on demonstrating compliance with Sharia rules which abhor
speculation, excessive uncertainty (Gharar), gambling (Maisir) and usury (Riba).
Consequently, it is unsurprising that IFRS and AAOIFI standards result in different
accounting treatment when the same transactions are considered.
The empirical research on TC remains very scarce. Most of the research done on the
Takaful industry is descriptive. It deals with the differences between conventional and
Islamic insurance, sources of Islamic insurance law and the origins of Takaful. Prior
studies have examined how Islamic financial institutions (hereafter, IFIs) recognize,
measure and report their myriad transactions in their annual reports, and whether they
conform to IFRS/IAS (Uddin, 2012). Other studies have examined IFRS’ application to
Islamic financial transactions, including Takaful contracts (Asian-Oceanian Standard-
Setters, AOSSG working group on Islamic finance, 2010). A biometric review of Takaful
studies by Hassan et al. (2020) identifies three major streams of research on Takaful: its
overview, growth pathways and models, governance mechanisms, products/services
and customer perception.
Our paper contributes to the literature by identifying an underexplored aspect of the
topic of value relevance under the setting of the Islamic Finance framework, and, more
particularly, under the new channel of the AAOIFI Financial Accounting Standards (FASs).
Although few studies investigated the value relevance of accounting earnings for Islamic
banks (IBs; Agbodjo et al., 2021), value relevance using the channels of AAOIFI versus IFRS
in TC has not been explored. AAOIFI standards are issued to offer a Sharia-compliant
framework for IFIs including TC. A public hearing is expected on 10 August 2022 on the
exposure draft of the AAOIFI FASs “Accounting for Takaful: recognition and
measurement”.
However, we observe that in the vast majority of Muslim countries, TC do not use
AAOIFI standards. Most TC (except in Bahrain, Oman and Qatar) use a different set of
standards, i.e. IFRS. Capital market authorities, such as in Saudi Arabia and the United
Arab Emirates (UAE), have made the adoption of IFRS mandatory, while the capital market Comparing the
authority in Bahrain requires the adoption of AAOFI. Moreover, the value relevance of a value
different set of accounting standards when adopted by TC lacks empirical research.
Unlike previous literature that investigated the value relevance of accounting earnings
relevance
(Ball and Brown, 1968; Barth et al., 1996, 1998, 2008; Ball et al., 2000, 2003), we compare the
value relevance of accounting earnings under AAOIFI and IFRS standards for TC. We,
therefore, offer essential contributions to the Islamic accounting literature. Firstly, to the
best of the authors’ knowledge, this is the first study that addresses the value relevance of
IFRS for TC. Secondly, we examine the effect of AAOIFI standards on the value relevance of
TC. Thirdly, we compare the impact of IFRS on the value relevance of TC and Conventional
Insurance Companies (hereafter, CIC).
The following research question will be answered in our study:

RQ1. Does the adoption of AAOIFI offer more value-relevant accounting numbers than
IFRS standards?
We use a panel data set from 2006 to 2015 to answer this question and the return and price
models developed by Easton and Harris (1991) and Ohlson (1995). Also covered by this
study are countries from 10 developing regions, including Bahrain, Bangladesh, Jordan,
Kuwait, Malaysia, Oman, Palestine, Saudi Arabia, Qatar and the UAE.
Comparing AAOIFI standards to IFRS, we find that the former provides more valuable
accounting numbers. We also find that firm’s size affects the value relevance of accounting
numbers under the IFRS and the AAOIFI standards. In addition, we find that the strength of
investor protection and auditing and reporting standards positively influence the value
relevance of accounting numbers under IFRS and AAOIFI standards.
The remainder of this article follows this structure. Our review of relevant literature is
developed in Section 2. Section 3 discusses accounting treatments under IFRS and AAOIFI
standards and then develops the research hypotheses. In Section 4, we discuss our research
method. Our empirical findings are presented in Section 5. The paper concludes in Section 6.

2. Literature review
2.1 Theoretical literature
Positive accounting theory offers the basis for accounting research that explains and
predicts accounting practices. It shows that firms’ characteristics related to microeconomic
factors may explain different compliance levels with accounting standards (Watts and
Zimmerman, 1986). To explain IFRS compliance in developing countries, our study is based
on positive accounting theory and references numerous advancements such as agency,
signalling, political process and capital need theories.
According to the agency theory, standard compliance should decrease the asymmetric
information between insiders and outsiders and improve accounting information’s value
relevance for stakeholders. According to signalling theory, managers use accounting
information to signal their good performance to stakeholders. Compliance with accounting
standards, for example, communicates to stakeholders that a company is committed to
improving the quality of its accounting numbers by using more stringent accounting
standards.
According to the political process theory, corporate managers of politically visible firms
that face high political costs may be driven to adopt accounting rules to avoid or mitigate
these costs (Holthausen and Leftwich, 1983). Finally, capital requirement theory implies that
access to capital is one of the most critical factors of accounting standard compliance.
Several variables have been brought into accounting studies to explain cross-sectional
JIABR variation in compliance with accounting standards. The literature, for example, suggests
that foreign listing and internationality influence IFRS compliance by influencing the
magnitude of competing for resources (Karim and Ahmed, 2005; Samaha and Stapleton,
2009).

2.2 Empirical literature review

Ball and Brown (1968) present the first empirical evidence of accounting information’s value
relevance. Non-financial companies were the focus of previous value relevance research (e.g.
Keener, 2011). Some studies examine the value relevance of accounting information before
voluntary and mandatory adoption of IFRS (Kargin, 2013). Other studies examine the value
relevance of accounting numbers before and after the adoption of IFRS (Tsalavoutas et al.,
2012; Karampinis and Hevas, 2011). Many studies provide empirical evidence that
accounting numbers contain value-relevant information (Barth et al., 1996; Eccher et al.,
1996; Nelson, 1996; Venkatachalam, 1996; Dimitrppoulos et al., 2010; Anandarajan et al.,
2011).
To the best of the authors’ knowledge, Kadri (2016) is the first to attempt and examine
the value relevance of accounting information in IBs. It demonstrates that, while book value
and earnings of IBs and conventional banks (hereafter, CBs) are both important, IBs’ value
relevance of earnings remains low when compared with CBs. In a recent study, Agbodjo
et al. (2021) found that when compared with CBs, the value relevance of accounting numbers
is higher for IBs, and IFRS strengthens the relevance of accounting numbers for these
banks. They also provide evidence that AAOIFI standards moderate the value relevance of
accounting numbers in IBs. There have been many studies on the value relevance of
accounting numbers under different regulatory regimes. However, the findings are mixed.
We add to the literature in this study by considering the Takaful industry and conducting a
cross-country study based on a sample of emerging Asian and Middle Eastern markets [1].

3. Accounting treatment under International Financial Reporting Standards

and Accounting and Auditing Organization for Islamic Financial Institutions
standards and hypothesis development
We discuss differences between Islamic and conventional accounting to determine which
accounting framework is more value relevant for TC. Islamic accounting is based on the
Sharia compliance framework, whereas conventional accounting is based on the decision
usefulness framework. Sharia compliance framework aims to:
Determine the rights and obligations of all interested parties, including those rights and
obligations resulting from incomplete transactions and other events, following the principles of
the Islamic Sharia and its concepts of fairness, charity and compliance with Islamic business
values. (AAOIFI, SFA 1).
Islamic accounting also aims to provide “useful information to users of these reports”, to
“enable them to make legitimate decisions”. IFIs have distinct functions and contracts. We
are all aware that the usage of deposits and the advancement of interest-bearing loans are
the cornerstones of modern finance strategies. IFIs, on the other hand, cannot receive or pay
interest under Islamic law, so they make profits through various Islamic contracts.
In addition, IFRS is not an appropriate framework as the AAOIFI for TC, as it has been
explicitly designed for CIC. In this regard, the former Director of technical development at
AAOIFI, Khairul Nizam, confirmed that “It is clear that the gaps and differences will
continue to exist between the two sets of standards” (Ibrahim, 2007). The differing structural
aims of the IASB and the AAOIFI have resulted in these gaps and disparities. The AAOIFI
aims to produce standards where IFRS do not adequately address the needs of IFIs or lead to Comparing the
Sharia compliance difficulties. There are economic, legal and social differences between IBs value
and CBs, so different accounting standards will be issued and used (Ibrahim, 2007).
AAOIFI standards impose significant disclosure requirements on TC to release relevant
relevance
information for their users. TC adopting AAOIFI standards follow relevant financial
reporting standards such as AAOIFI FAS 12 “General Presentation and Disclosure in the
Financial Statements of Takaful Companies”. AAOIFI FAS 12 suggests – as a general
requirement – three main components (financial statements, comparative amounts in these
statements and notes on the statements) to ensure that the information presented in
corporate annual report is relevant. Based on this standard, IFIs must disclose statement of
financial position, income statement, statement of cash flows and statement of changes in
owners’ equity. They must also disclose, statement of the certificate holders’ surplus
(Deficit) and statement of sources and uses of funds in the Zakat and charity fund. On the
other hand, AAOIFI FAS 13 “Disclosure of Bases for Determining and Allocating Surplus or
Deficit in Takaful Companies” suggests that policy related to the contractual relationship
between certificate holders and Takaful operations, investment of certificate holders’ funds
and investment of shareholders’ funds should be disclosed (paragraph 3.1). For sharing
underwriting surplus, IFIs must disclose the surplus calculation basis, the base of surplus
sharing and distributing policy, such as Mudaraba or another base (paragraph 3.2 to 3.10).
AAOIFI FAS 15 “Provisions and Reserves in Takaful Companies” covers technical
provisions for general Takaful operations. It includes the deficit reserves that are set aside
by the company from the surplus before being allocated to certificate holders to make
provision against future losses, as well as the equalization reserve that the company
establishes to offset the impact of exceptionally high loss ratios for classes of Takaful
operations with a high degree of claims volatility. The AAOIFI FAS 17 “Investments”
standard covers direct investments, investment funds and portfolios, Sukuk (Islamic bonds),
shares, real estate and the valuation methods, presentation and disclosure information for
each type of investment.
The AAOIFI FAS 18 “Islamic Financial Services Offered by Conventional Financial
Institutions” standard applies to financial institutions that provide Islamic financial services
in addition to their traditional financial services. A supplementary statement should be
disclosed in the notes to financial statements to show the funds mobilized according to
Shariah rules and principles and the assets financed by these funds (paragraph 5.2). Finally,
AAOIFI FAS 19 “Contributions in Takaful Companies” standard applies to the
contributions made based on donation by the certificate holders to TC.
Accounting under IFRS is quite different, whereas TC accounting is significantly
affected by the IAS 39 “Financial instruments” standard for the measurement and
recognition of financial assets and liabilities. This is because insurance companies’ balance
sheets in general are dominated by financial assets and liabilities. In addition to IAS 39, the
IASB deals with accounting for financial instruments in other two accounting standards:
IAS 32, “Financial instruments: Presentation” (IASB, 2003), deals with presentation issues;
while IFRS 7, “Financial instruments: Disclosures”, deals with disclosure issues. The IFRS 4
“Insurance contracts” standard is another necessary standard that TC adopting IFRS must
comply with. On the other hand, Takaful firms do not even meet the IFRS 4 definition of an
insurance contract. Takaful contracts unquestionably do not fall under the scope of IFRS 4
because the definition of insurance under IFRS 4 is about risk transfer, but Takaful
contracts’ fundamental basis is risk sharing. It is noteworthy to highlight the issuance of the
new standard IFRS 17 that will be effective for annual reporting periods beginning on or
after 1 January 2023 with earlier application permitted as long as IFRS 9 (IFRS 9 replaced
JIABR IAS 39 and was effective for annual periods beginning on or after January 1, 2018.) is also
applied.
Due to the different disclosure requirements under the various reporting regimes,
adopting AAOIFI standards is thought to represent a considerable increase in a Takaful
company’s pledge to greater disclosure and transparency. Nevertheless, AAOIFI standards
feature higher levels of disclosure and distinct recognition and measurement rules that
affect the relevance of accounting figures.
Based on the above discussion, we believe that AAOIFI standards are more suitable for
TC than IFRS standards. Accordingly, AAOIFI will provide more value-relevant accounting
information than IFRS. We, therefore, hypothesize that:

H1. AAOIFI accounting standards are more value relevant than IFRS for TC.

4. Methodology
4.1 Data collection and sampling
We collect data from the Datastream database. Missing data were gathered manually from
insurance companies’ annual reports. We collected annual reports from companies’ official
websites for 10 years (2006–2015). We used the International Cooperative and Mutual
Insurance Federation list to identify TC worldwide. The list contained 184 listed and non-
listed TC. We ended up with 54 listed TC as we rely on stock data to examine the value
relevance of accounting data for value relevance studies, which are only available for listed
companies. This is because we rely on stock data, which are only available for listed
companies. Our final sample consists of 54 listed TC (49 adopting IFRS, 5 adopting AAOIFI
standards) and 77 listed CIC from 10 developing countries: Bahrain, Bangladesh, Jordan,
Kuwait, Malaysia, Oman, Palestine, Qatar, Saudi Arabia and the UAE. The sample period
2006–2015 was chosen for the following reasons. Firstly, the year 2006 is chosen because of
data availability. This is because most of the TC selected in our sample started operating in
2006 or after. Secondly, the year 2015 is selected because it was the last year for which
annual reports were available at the time of data collection (we also used 2016 annual
reports to compute our dependent variables, which are stock returns and share prices).
Table 1 reports our sample composition by country, indicating that Saudi Arabia and the
United Arab Emirates are the most representative countries of our whole sample in general
and of the sub-sample of TC.

Country name TC CIC Frequency Total no. of companies

Bahrain 1 4 0.03 5
Bangladesh 4 11 0.11 15
Jordan 2 22 0.18 24
Kuwait 2 4 0.04 6
Malaysia 1 8 0.06 9
Oman 1 3 0.03 4
Palestine 1 1 0.01 2
Qatar 2 3 0.03 5
Saudi Arabia 33 0 0.25 33
United Arab Emirates 7 21 0.21 28
Table 1. Total 54 77 1 131
Sample composition
across countries Notes: TC: Takaful companies; CIC: Conventional Insurance Companies
4.2 Model specification Comparing the
Our research was based on the Price and Return models developed by Ohlson (1995) and value
Easton and Harris (1991). Prior value relevance research has frequently used these two
models (Hung and Subramanyam, 2007; Barth et al., 2008; Clarkson et al., 2011; Tsalavoutas
relevance
et al., 2012; Oskana, 2013). The magnitude and statistical significance of the coefficients, and
R squared values, are used to measure the value relevance of accounting numbers (Barth
et al., 1998; Francis and Schipper, 1999). Using a panel data set from 2006 to 2015, we
investigate the value relevance of accounting information presented under IFRS and
AAOIFI standards. We investigate the relationship between accounting data and stock
market data. To test our hypothesis using the Price model, we estimate multiple regression
models for separate sub-samples of TC adopting IFRS and those adopting AAOIFI
standards using panel data:

Pi;t ¼ a0 þ a1 EPSi;t þ «i;t (1)

Pi;t ¼ a0 þ a1 BVPSi;t þ «i;t (2)

Pi;t ¼ a0 þ a1 EPSi;t þ a2 BPVPSi;t þ «i;t ; (3)

where:
Pi,t: stock price of company i three months after the financial year end, on 31 March year
(t þ 1; to ensure that accounting information was available to investors); EPSi,t: reported
earnings per share of company i at the end of the year t; BVPSi,t: reported book value per
share of company i at the end of the year t.
We also use the return model developed by Easton and Harris (1991):

Ri;t ¼ b0 þ b1 Earni;t þ «i;t (4)

Ri;t ¼ b0 þ b1 DEarni;t þ «i;t (5)

Ri;t ¼ b0 þ b1 Earni;t þ b2 DEarni;t þ «i;t (6)

where:
Ri,t: returns of a company i three months after the financial year end, on 31 March year
(t þ 1). It is computed using the following formula: Ri,t = (AdjustPi,t  AdjustPi,t1)/
AdjustPi,t1; Earni,t: EPS of firm i for year t over the year end (t1) price; D Earni,t: change in
EPS of company i over the year end (t1) price.
Control variables:
According to previous literature, larger companies produce more valuable relevant
information as they are more attentively watched by analysts and provide more information
(Brimble and Hodgson, 2007). Other research, on the other hand, implies that small firm
earnings may be more useful than large firm results due to a lack of media exposure (Beekes,
Pope, and Young, 2004). Chen et al. (2001) and Alali and Foote (2012) show that the quality of
accounting numbers is determined by the quality of the external auditors. Moreover, as our
research period covers the global financial crisis, it is noteworthy to highlight its effect on
the quality of accounting figures. The financial crisis does have an impact on social,
economic and political life. In terms of economic competition, the crisis had an impact on the
JIABR stock values of publicly traded companies (Mun and Brooks, 2012). The literature also
shows that interaction between accounting standards and the country-specific
characteristics, and particular individual firm incentives may result in different economic
consequences (Barth et al., 2008). The development of stock markets significantly impacts
on any country’s accounting environment, particularly in emerging markets. Capital market
participants demand higher quality of financial and non-financial disclosure (Hassab
Elnaby et al., 2003). To determine the impact of the size of the stock market on the value
relevance of IFRS and AAOIFI adoption, we use the proxy of stock market capitalization as
a percentage of GDP. Chebaane and Ben Othman (2014) find that the strength of investor
protection positively affects stock prices.
Thus, in this paper, we control for firm specific effects such as company size, audit
quality, and financial crisis. We also control for the strength of investor protection, the
strength of auditing and reporting standards and market capitalization:

Pi;t ¼ a0 þ a1 EPSi;t þ a2 BVPSi;t þ a3 Sizei;t þ a4 AuditQi;t þ a5 FCrisis þ «i;t (7)

Ri;t ¼ b0 þ b1 Earni;t þ b2 DEarni;t þ b3 Sizei;t þ b4 AuditQi;t þ b5 FCrisis þ «i;t (8)

Pi;t ¼ a0 þ a1 EPSi;t þ a2 BVPSi;t þ a3 InvestPro þ a4 SAuditing þ a5 MarCap þ «i;t (9)

Ri;t ¼ b0 þ b1 Earni;t þ b2 DEarni;t þ b3 InvestPro þ b4 SAuditing þ b5 MarCap þ «i;t

(10)

where,
Audit qualityi,t: is a categorical variable taking the value of 0 if none of the
company’s auditors belong to one of the Big 4 auditors (Ernst and Young, Deloitte,
PWC, PKMG), 1 if the company hires one Big 4 auditor, 2 if the company hires two
auditors, one of which is a Big 4 auditor and 3 if the company hires two auditors that are
both from Big 4 companies; Sizei,t: is measured by the market value of a firm i at the end
of year t; InvestProi,t: is an index that ranges from 0 (little to no investor protection) to
10 (greater investor protection); SAuditingi,t: is an index that ranges from 1 (extremely
weak) to 7 (extremely strong); MarCapi,t: is the market capitalization of each country;
FCrisis: is measured by a dummy variable taking the value of 0 in the post-financial-
crisis period (2010–2015) and 1 during the financial crisis period (2007–2009). Table 2
provides variables’ definitions.

5. Results and discussion

5.1 Descriptive statistics
Table 3 displays descriptive analysis. On average, we notice that stock prices, stock returns
and BVPS are higher for the sub-sample of TC adopting IFRS, while EPS, Earn and DEarn
are higher for TC adopting AAOIFI standards. For control variables, mean size, strength of
investor protection and strength of auditing and reporting standards are higher for TC
adopting IFRS. The mean market capitalization variable is higher for the sub-sample of TC
adopting AAOIFI standards. These descriptive statistics show that there were differences in
accounting information and market data relationships during the sample period.
With regard to audit quality, annual reports of 17% of our sampled TC adopting IFRS
are audited by non-Big 4 firms; 19% are audited by one Big 4 auditor; 37% are audited by
Variables Definitions Data Source
Comparing the
value
P Pit is the price of common stock of the firm i three Datastream relevance
months after the fiscal year’s end
R Rit is the returns of a firm i three months after the Datastream
fiscal year end, on 31 March year (t þ 1)
EPS EPSit is the earnings per share of firm i during the Datastream and annual report
year t
BVPS BVEit is the book value per share of firm i at the end Datastream
of year t
AuditQ Audit quality is a categorical variable taking the Annual report
value of 0 if none of the company’s auditors belong
to one of the Big 4, 1 if the company hires one Big 4
auditor, 2 if the company hires two auditors, one of
which is a Big 4 auditor and 3 if the company hires
two Big 4 auditors
Earn EPSi,t for a firm i over the year end (t1) price Datastream
DEarn EPS variation for a firm i over the year end (t1) Datastream
price
Size Measured by the market value of a company i Datastream
FCrisis Measured by a dummy variable taking the value of 0 –
in the post financial crisis period (2010–2015) and 1
during financial crisis period (2007–2009)
MarCap The share price multiplied by the number of World bank
outstanding shares for listed domestic companies
InvestPro An index that ranges from 0 (little to no investor Global competitiveness report
protection) to 10 (greater investor protection) Table 2.
SAuditing An index that ranges from 1 (extremely weak) to 7 Global competitiveness report Variables’ definitions
(extremely strong) and sources

two auditors, one of which is Big 4 while the other is not; and 25% are audited by two
auditors from Big 4 firms. For the sub-sample of TC adopting AAOIFI, 54% of their annual
reports are audited by non-Big 4 firms and 45% are audited by one of the Big 4 auditors.
In addition, we conducted a non-parametric t test of mean difference. The findings reveal
that the means of dependent and independent variables of the two groups of TC adopting
IFRS and AAOIFI standards differ significantly.

5.2 Pairwise correlation analysis

The correlation coefficients for the sub-sample of TC implementing AAOIFI standards are
shown in Panel A of Table 4. We can see that the EPS and BVPS coefficients are both
positive and significant. The sub-sample of TC using AAOIFI standards has higher values
than the sub-sample of TC adopting IFRS standards, as exhibited in panel B of Table 4.
Earn and DEarn, on the other hand, are higher for TC adopting AAOIFI, but these
differences are not statistically significant. The high values of the parameter coefficients
show that investors believe AAOIFI-compliant figures are more informative than IFRS-
compliant numbers for TC. Our finding supports our research hypothesis that accounting
figures under AAOIFI standards are expected to be more value relevance than those
prepared under IFRS for TC.

5.3 Regression findings

5.3.1 Price–earnings models. The results of our hypothesis are shown in panel A of Table 5,
which show that AAOIFI standards are more value relevant to TC than IFRS. All VIF
JIABR Mean SD Min Max Skewness Kurtosis SW test N

Panel A: TC adopting AAOIFI

P 2.80 2.95 0.19 11.75 1.48 4.30 4.41*** 38
R 0.04 0.36 0.70 0.95 0.42 3.76 2.046*** 36
EPS 0.30 0.47 0.00 1.95 2.16 7.15 5.03*** 32
BVPS 1.71 1.59 0.22 5.61 1.08 3.10 4.07*** 42
Earn 0.09 0.23 0.00 1.34 4.86 26.05 6.32*** 31
DEarn 0.03 0.27 0.59 1.26 2.96 16.85 5.50*** 28
Size 79.95 88.74 8.08 329.41 1.34 3.53 4.71*** 37
MarCap 68.99 43.62 25.06 238.67 1.74 6.96 3.93*** 41
InvestPro 4.80 0.55 3 5.7 0.84 4.68 2.09** 32
SAuditing 5.51 0.37 4.9 6.1 0.01 1.94 0.91 35
Panel B: TC adopting IFRS
P 6.21 5.69 0.06 30.38 1.21 4.58 8.16*** 394
R 0.05 0.60 0.78 1.37 2.88 17.47 9.37*** 346
EPS 0.13 0.31 0 2.14 3.35 14.96 10.67*** 322
BVPS 9.38 87.92 1.27 1208.46 11.73 143.89 12.90*** 359
Earn 0.02 0.04 0 0.33 2.77 14.50 9.04*** 311
DEarn 0.0 0.03 0.17 0.16 0.53 9.32 8.07*** 273
Size 224.39 311.80 5.9 2843.4 4.22 25.81 11.31*** 386
MarCap 59.47 25.02 5.36 238.67 2.14 13.90 9.25*** 351
InvestPro 6.09 1.04 3 8.7 0.43 2.53 6.47*** 439
SAuditing 5.21 0.55 3.3 6.1 2.07 6.91 9.98*** 404
Panel C: Descriptive statistics for independent discrete variable
TC adopting IFRS TC adopting AAOIFI
Audit quality Proportion Standard error Proportion Standard error
0 0.17 0.01 0.54 0.08
1 0.19 0.01 0.45 0.08
2 0.37 0.02
3 0.25 0.02

Notes: Pi,t: share price of firm i three months after the fiscal year end, on 31 March year (t þ 1; to ensure
that the accounting information was available and absorbed by the investors); EPSi,t: reported earnings per
share of firm i at the end of the year t; BVPSi,t: reported book value per share of firm i at the end of the year
t; Ri,t: returns of a firm i three months after the fiscal year end, on 31 March year (t þ 1) it is computed using
the following formula: Ri,t = (AdjustPi,t  AdjustPi,t1)/AdjustPi,t1; Earni,t: EPS of firm i for year t over the
year end (t1) price; D Earni,t: change in EPS of firm i over the year end (t1) price; Size i,t: is measured by
the market value of a firm i at the end of year t; InvestPro i,t: is an index that ranges from 0 (little to no
investor protection) to 10 (greater investor protection); SAuditing i,t: is an index that ranges from 1
Table 3. (extremely weak) to 7 (extremely strong); MarCap i,t: is the market capitalization of each country; audit
Descriptive statistics quality is a categorical variable taking the value of 0 if none of the company’s auditors belong to one of the
Big 4. 1 if the company hires one Big 4 auditor, 2 if the company hires two auditors, one of which is a Big 4
for dependent, auditor and 3 if the company hires two Big 4 auditors; notations: to avoid the problem of outliers, we have
independent and winsorized all continuous variables. We used the inter-quantile range method to determine which tail and at
control variables which level to winsorize our data; TC: Takaful companies

factors for independent variables are less than 5. As a result, multicollinearity appears to be
not a problem in our price regression models [2]. To assess heteroskedasticity, the Brusch–
Pagan test is used. In addition, we performed the Wooldridge test for first-order
autocorrelation in panel data. We referred to Hoechle (2007) and used cluster to provide
robust estimates of the regression parameters in case of heteroskedasticity and a first-order
(AR1) serial correlation in error terms. Our results are derived from fixed or random effect
models; this depends on the Hausman test results. Fisher tests for goodness-of-fit model are Comparing the
also presented. value
The first equation [equation (1)] results showed that EPS variables are negative but
statistically non-significant for both sub-samples for panel data regressions. The results of
relevance
the second equation [equation (2)] exhibit a positive and significant association between
BVPS and share prices at the 1% level. The results of the third equation [equation (3)] show
that the coefficient of EPS is not statistically significant for the sub-samples of TC adopting
AAOIFI standards. For the sub-sample of TC adopting IFRS, however, it is negative and
statistically significant at the 5% level. The coefficient on the BVPS variable is positive and
statistically significant at the 1% level for both sub-samples. For the sub-sample of TC
adopting AAOIFI standards, BVPS variable is positively and statistically associated with
share prices at the 5% level.
Our basic Ohlson regression models suggest that annual book values per share prepared
under IFRS and AAOIFI standards are more valuable to investors than annual earnings per
share for TC adopting IFRS and AAOIFI standards. When looking at the explanatory power
of our three equations, we can see that the explanatory power of regression models related to
the sub-sample of TC adopting AAOIFI exceeds the explanatory power of regression
models related to the sub-sample of TC adopting IFRS. This suggests that higher
information content of the book value per share and earnings per share is provided by TC
that adopt AAOIFI standards compared with their peers that adopt IFRS. The result implies
that book values contain information valued by the equity investors and that accounting
information reported under both IFRS and AAOIFI standards is value relevant.
Our findings are consistent with those of Anandarajan et al. (2011) and Agbodjo et al.
(2021) who argue that increased disclosure has a significant impact on investors’
understanding and interpretation of financial statement figures. Greater disclosure indicates
a better grasp of the issues influencing the data that underpin reported earnings, lowering
stock market value. Our findings are also consistent with recent literature arguing that IBs
see accountability as Amanah towards Allah (God), owners and all stakeholders according
to the Islamic accountability theory (Agbodjo et al., 2021).
Thus, we confirm our first hypothesis for the price model based on the R-squared values
of the two sub-samples of TC adopting IFRS and AAOIFI standards, respectively.
Following Kothari and Zimmerman (1995), we examine regression coefficients and their
R-squared values using both price and returns models.
5.3.2 Returns–earnings models. The findings of the return model are presented in
Table 6. The results of the sub-sample of TC that adopted AAOIFI criteria are shown in
Panel A, which reveals a positive and significant coefficient on the earnings variable at the
1% level.
The fourth equation [equation (4)] results show that the Earn variable is positive but
insignificant for the sub-sample of TC adopting AAOIFI standards. Results related to the

Mean t test

P 3.5***
R 0.14
EPS 2.77*** Table 4.
BVPS 0.55 Mean t test for
Earn 4.62*** comparison of two
DEarn 1.77* independent groups
 JIABR

Table 5.
Correlation matrices
P R EPS BVPS Earn DEarn AuditQ Size FCrisis MarCap InvestPro SAuditing

Panel A: Takaful companies adopting AAOIFI

P 1
R 0.335** 1
EPS 0.476*** 0.08 1
BVPS 0.882*** 0.139 0.566*** 1
Earn 0.079 0.259 0.761*** 0.124 1
DEarn 0.018 0.244 0.692*** 0.011 0.912*** 1
AuditQ 0.182 0.15 0.278 0.037 0.004 0.022 1
Size 0.833*** 0.074 0.560*** 0.764*** 0.001 0.019 0.288* 1
FCrisis 0.068 0.195 0.233 0.107 0.251 0.157 0.051 0.048 1
MarCap 0.212 0.125 0.218 0.23 0.302 0.229 0.61*** 0.076 0.325** 1
InvestPro 0.12 0.03 0.151 0.249 0.197 0.083 0.212 0.142 0.098 0.402**
SAuditing 0.405** 0.09 0.133 0.26 0.1 0.05 0.09 0.44** 0.25 0.03 0.47*** 1
Panel B: Takaful companies adopting IFRS
P 1
R 0.228*** 1
EPS 0.457*** 0.027 1
BVPS 0.003 0.056 0.732*** 1
Earn 0.041 0.156*** 0.451*** 0.158*** 1
DEarn 0.002 0.057 0.199*** 0.038 0.529*** 1
AuditQ 0.330*** 0.044 0.160*** 0.032 0.144** 0.066 1
Size 0.493*** 0.037 0.514*** 0.08 0.217*** 0.056 0.240*** 1
FCrisis 0.045 0.066 0.008 0.138*** 0.004 0.209*** 0.12*** 0.013 1
MarCap 0.052 0.122** 0.08 0.091 0.407*** 0.117* 0.244*** 0.055 0.076 1
InvestPro 0.202*** 0.173*** 0.079 0.065 0.095* 0.058 0.076 0.067 0.37*** 0.228*** 1
SAuditing 0.42*** 0.05 0.22*** 0.04 0.11** 0.06 0.65*** 0.22*** 0.31*** 0.27*** 0.03 1
 (1) (2) (3)
Comparing the
value
Panel A: Price model results for Takaful companies adopting AAOIFI relevance
EPS 0.46 (0.666) – 0.48 (0.233)
BVPS – 0.59*** (0.007) 0.72** (0.011)
Constant 2.96*** (0.000) 1.49** (0.024) 1.49** (0.014)
R2 89.69% 92.58% 91.98%
Mean VIF 1 1 1.58
N 32 38 32
Fisher 0.19 (0.665) 4.08* (0.051) 4.43** (0.022)
Panel B: Price model results for Takaful adopting IFRS
EPS 0.28 (0.878) – 5.16** (0.027)
BVPS – 1.46*** (0.000) 2.55*** (0.000)
Constant 5.95*** (0.000) 3.84*** (0.000) 2.48*** (0.003)
2
R 76.98% 74.04% 52.92%
Mean VIF 1 1 2.05
N 315 351 305
Fisher 18.08*** (0.000) 17.55*** (0.000) 36.87*** (0.000)
Table 6.
Notes: *Significant at 0.1 level; **significant at 0.05 level; and ***significant at 0.01 level Price model results

sub-sample of TC adopting IFRS show a positive and significant association at 10%.

Regarding the sub-sample of TC adopting IFRS, coefficients on the DEarn variable are not
statistically significant. The results of the sixth equation [equation (6)] show that the
coefficient of the Earn variable is statistically significant at 1%. At the same time, there is no
significant association between DEarn and stock returns for the sub-sample of TC adopting
AAOIFI standards. Results also show that the Earn variable is positively and significantly
associated with stock returns at a level of 1% for regression models of the TC adopting
IFRS. Overall, results show a very low R squared. However, we can note that R square of
regression models for TC adopting AAOIFI standards is higher than that of TC adopting
IFRS, despite the weak association between Earn, DEarn and stock returns. This suggests
that AAOIFI standards are more value relevant than IFRS for TC. This result corroborates
our expectations and our price model results. TC that adopt AAOIFI standards will engage
in more disclosure, allowing them to produce high-quality accounting information that is
relevant to investors.
5.3.3 Additional analysis. This section compares the value relevance of IFRS when
adopted CIC and TC. When CIC adopts IFRS, we expect it to have a larger value relevance
than when TC adopts it. Table 7 provides us with results regarding the value relevance of
IFRS standards when adopted by CIC. Price model results show a positive and significant
coefficient on EPS at the 1% level [presented in equation (1)], a positive and significant
association between BVPS and share prices [equation (2)] at a level of 1% and a positive and
significant coefficient on EPS and BVPS variables at a 1% level [equation (3)] for. The
magnitude of the BVPS coefficient is much lower than that of the EPS coefficient. This
suggests that EPS contributes more to the valuation model’s overall explanatory power than
BVPS. Results related to the sub-sample of TC adopting IFRS were previously presented
and discussed. The R square of regression models related to the sub-sample of CIC adopting
AAOIFI is much higher than that of TC adopting IFRS. Thus, accounting figures prepared
by CIC are more value relevant than those prepared by TC, even though they are prepared
under the same accounting standards (i.e. IFRS). This is in line with our expectations.
JIABR (4) (5) (6)

Panel A: Return model results for Takaful companies adopting AAOIFI

Earn 0.40 (0.104) – 0.10* (0.084)
DEarn – 0.32 (0.148) 0.02 (0.725)
Constant 0.03 (0.519) 0.05 (0.403) 0.06 (0.303)
R2 8.86% 7.89% 11.87%
Mean VIF 1 1 1
N 31 28 28
Fisher 2.82 (0.103) 2.23 (0.147) 1.68 (0.206)
Panel B: Return model results for Takaful companies adopting IFRS
Earn 1.53* (0.060) – 2.50*** (0.007)
DEarn – 0.66 (0.686) 2.85 (0.115)
Constant 0.01 (0.638) 0.01 (0.673) 0.04 (0.208)
R2 1.18% 1% 2.85%
Mean VIF 1 1 1.25
N 300 262 262
Fisher 3.56* (0.060) 0.16 (0.686) 3.80** (0.023)
Table 7.
Return model results Notes: *Significant at 0.1 level; **significant at 0.05 level; ***significant at 0.01 level

Panel B exhibits the return model results. We can see a positive and significant association
between earnings and stock returns at a level of 1% in equation (4), but no significant
association between DEarn and stock returns in equation (5). Taken together, the results
show a positive and significant association between the Earn variable and stock returns at a
level of 1%: equation (6). Our findings are in line with prior research findings showing that
Earn is significantly associated with stock returns, especially during IFRS adoption
periods (Alali and Foote, 2012), and that IFRS adoption enhances the value relevance of
accounting earnings. The R square of these regression models is very low for both CIC
and TC adopting IFRS regression models. This suggests that we cannot confirm the
higher value relevance of IFRS when adopted by CIC over its TC peers for the return
model.
Tables 8 and 9 report the results of firm- and country-specific effects. To control for firm
and country effects on the value relevance of IFRS and AAOIFI standards for TC and CIC,
we added firm size, audit quality, financial crisis, strength of investor protection, strength of
auditing and reporting standards and market capitalization variables to our simplified price
and return regression models. The company size variable is positively and statistically
associated with share prices at a level of 1% when looking at all our sub-samples. By
contrast, the return model results show no significant association between company size and
stock returns for all sub-samples. Our price model results corroborate with those of Alali
and Foote (2012) and Chebaane and Ben Othman (2014), who demonstrated that the value
relevance of companies adopting IFRS is significantly associated with large-sized
companies. This can be explained by the fact that larger firms are more closely followed by
analysts and display higher levels of information disclosure, which is why they are more
value relevant (Brimble and Hodgson, 2007). Conversely, Chen et al. (2001) demonstrated
that earnings prepared under Chinese GAAP are more value relevant in smaller firms
because of more competing information sources about larger firms in the market. Similarly,
Filip and Raffournier (2010) studied the value relevance of earnings in the Bucharest Stock
 (1) (2) (3)
Comparing the
value
Panel A: Price model results for conventional companies adopting IFRS relevance
EPS 1.97*** (0.000) – 1.08*** (0.000)
BVPS – 0.84*** (0.000) 0.76*** (0.000)
Constant 1.62*** (0.000) 0.79*** (0.000) 0.73*** (0.000)
R2 90.99% 92.91% 93.02%
Mean VIF 1 1 2.28
N 703 666 653
Fisher 72.78*** (0.000) 250.50*** (0.000) 141.49*** (0.000)
Panel B: Return model results for Conventional companies adopting IFRS
(4) (5) (6)
Earn 0.75*** (0.006) – 0.80*** (0.004)
DEarn – 0.12 (0.627) 0.41 (0.180)
Constant 0.007 (0.785) 0.04*** (0.005) 0.01 (0.676)
R2 1.18% 1% 1.36%
Mean VIF 1 1 1.56
N 636 626 626
Fisher 7.50*** (0.006) 0.24 (0.626) 4.30** (0.014) Table 8.
Price and return
Notes: *Significant at 0.1 level; **significant at 0.05 level; ***significant at 0.01 level models results

Exchange and found that the association between accounting earnings and stock returns is
higher for securities issued by small companies. Results reveal that the audit quality
variable is positively and statistically significant for the sub-sample of TC adopting IFRS at
a level of 1% and 10% for price and return models, respectively. This suggests that the
value relevance of IFRS accounting standards is affected by the auditor’s quality when
adopted by TC.
Our price model findings are in line with those of Alali and Foote (2012), who studied
value relevance of IFRS for a sample of listed firms on the Abu Dhabi stock exchange. They
divided their sample into Big 4 and non-Big 4 sub-samples and showed that coefficients of
both EPS and BVPS are positive and significant for the Big 4 sub-sample and that neither
coefficient is statistically significant for the non-Big 4 sub-sample. Their results also showed
that the adjusted R squared for the Big 4 sub-sample is larger than the R squared of the non-
Big 4 sub-sample for the return model. Results show a positive and significant association
between the financial crisis and share price variables at a level of 1% for the sub-sample of
CIC adopting IFRS. This suggests that value relevance of accounting figures improved
during the financial crisis period. This is in line with the findings of Devalle (2012), who
found that the financial crisis had a positive impact on the value relevance of accounting
figures prepared under IFRS. However, the coefficient of the financial crisis variable is
negative and statistically associated with share prices at a level of 5% when looking at the
sub-sample of TC adopting IFRS.
Panel B of Tables 9 and 10 exhibit additional analysis of country effects and show that
there is a positive and significant association between the investor protection variable and
share prices at a level of 1% for the sub-sample of TC adopting IFRS. Return model results
show a positive and significant association between strength of investor protection and CIC
adopting IFRS at a level of 1%. Our findings are in line with those of Chebaane and Ben
Othman (2014), who found a positive association between increased value relevance and
strong investor protection. Price model results show a positive and significant association
between strength of auditing and share prices at a level of 5% for both TC adopting IFRS
JIABR TC IFRS TC AAOIFI CIC IFRS

Panel A: Price model results

EPS 5.44*** (0.002) 0.76 (0.427) 0.61*** (0.006)
BVPS 2.29*** (0.000) 1.07*** (0.000) 0.68 (0.000)
Size 0.007*** (0.000) 0.009** (0.042) 0.002*** (0.000)
AuditQ 0.40*** (0.003) 0.58 (0.137) 0.04 (0.702)
FCrisis 0.54** (0.017) 0.42 (0.247) 0.28*** (0.000)
Constant 0.004 (0.961) 0.14 (0.392) 0.62** (0.018)
R2 56.35% 91.67% 94.70%
Mean VIF 1.56 2.47 1.79
N 296 31 305
Fisher 96.15*** (0.000) 170.57*** (0.000) 114.28*** (0.000)
Panel B: Price model results
EPS 6.16*** (0.002) 0.27 (0.327) 0.93*** (0.000)
BVPS 2.49*** (0.000) 1.31*** (0.000) 0.57*** (0.000)
InvestPro 1.36*** (0.000) 0.11 (0.477) 0.06 (0.300)
SAuditing 1.86** (0.023) 0.73** (0.035) 0.10 (0.571)
MarCap 0.04*** (0.010) 0.002 (0.799) 0.006*** (0.000)
Constant 13.08*** (0.001) 5.09** (0.012) 0.60 (0.530)
R2 59.87% 98.62% 96.38%
Mean VIF 1.43 2.48 2.00
N 252 28 444
Table 9. Fisher 94.30*** (0.000) 71.43*** (0.000) 128.47*** (0.000)
Firm- and country-
specific effects Notes: *Significant at 0.1 level; **significant at 0.05 level; ***significant at 0.01 level

and AAOIFI standards, while return model results show a negative association between
strength of auditing and stock returns at a level of 1% for the sub-sample of CIC adopting
IFRS. The response coefficient of the market capitalization variable is negative and
statistically significant when looking at TC adopting IFRS only for panel regressions at a
level of 1% and 5% for price and return models, respectively. For the sub-sample of CIC
adopting IFRS, price model results show a negative association between market
capitalization and share prices at a level of 1%. This is in contrast to the finding of Chebaane
and Ben Othman (2014), who found no significant association between share price and
market capitalization using a sample of emerging countries adopting IFRS. Return model
results show a negative association between market capitalization and stock returns only for
the sub-sample of CIC adopting IFRS where the response coefficient was negative and
statistically significant at a level of 1% but near zero.
Although the results of returns–earnings models and price–earnings models appear to be
incompatible, Chen et al. (2001) stated that the two models provide distinct viewpoints on the
value relevance of accounting information, as reported by Kothari and Zimmerman (1995).
The return model looks at whether accounting information reflects events that affect stock
prices over time, whereas the price model looks at whether accounting information is
reflected in stock prices cumulatively up to a given point in time. Therefore, accounting
measures can be value relevant if they affect price levels even though they do not affect price
changes (Amir et al., 1993). In addition, this inconsistency may be caused by our multi-
country sample. Miller (2004) limited sample sizes in cross-country research can lead to
inaccurate representation of a country’s corporate industry, endogeneity of factors at the
country level and the omission of strongly correlated variables. Miller (2004) advocates for
 TAIFRS TAAAOIFI CAIFRS
Comparing the
value
Panel A: Return model results relevance
Earn 2.67** (0.014) 0.10 (0.120) 0.75** (0.024)
DEarn 3.87** (0.046) 0.01 (0.838) 0.27 (0.369)
Size 0.0001 (0.922) 0.0003 (0.679) 0.000 (0.715)
AuditQ 0.05* (0.072) 0.18 (0.198) 0.08** (0.014)
FCrisis 0.11 (0.236) 0.003 (0.981) 0.12** (0.005)
Constant 0.13** (0.013) 0.03 (0.735) 0.01 (0.741)
R2 5.06% 18.42% 4.39%
Mean VIF 1.25 1.15 1.36
N 261 28 626
Fisher 2.88** (0.015) 0.99 (0.444) 3.48*** (0.004)
Panel B: Return model results
Earn 3.44*** (0.004) 0.14 (0.187) 0.60** (0.038)
DEarn 3.65* (0.096) 0.003 (0.971) 0.30 (0.226)
InvestPro 0.10*** (0.001) 0.01 (0.909) 0.03*** (0.009)
SAuditing 0.06 (0.511) 0.03 (0.892) 0.22*** (0.000)
MarCap 0.005** (0.017) 0.001 (0.863) 0.0003 (0.432)
Constant 0.74 (0.198) 0.16 (0.890) 1.02*** (0.000)
R2 9.89% 35.56% 10.84%
Mean VIF 1.22 1 1.41
N 219 15 452
Fisher 4.48*** (0.000) 0.99 (472) 5.15*** (0.000) Table 10.
Firm- and country-
Notes: *Significant at 0.1 level; **significant at 0.05 level; ***significant at 0.01 level specific effects

accounting research to be undertaken on a country or region-by-country or region-by-region

basis to allow for a more concentrated investigation. Our paper may be hampered by the
small size of Takaful firms, particularly those adhering to AAOIFI standards. Indeed, since
our study is a value relevance study, the use of market data is crucial. Accordingly, our
analysis focused only on listed companies, which was why we dropped some non-listed TC
adopting AAOIFI standards from our sample.

6. Conclusion
The purpose of this study was to see if AAOIFI standards, established by the AAOIFI body,
provide more value-relevant accounting information to their users than IFRS. Besides, we
investigated the value relevance of IFRS for both CIC and TC. Previous research examining
the benefits of IFRS adoption used the standard Ordinary Least Squares technique, despite
the fact that such methods are prone to biases when long-tailed error distributions deviate
from normality. In this paper, we used a panel data analysis. Our findings suggest that
accounting information prepared under AAOIFI standards is more value relevant for TC
than accounting information prepared under IFRS. These findings are confirmed when
using price and return models. In addition, we found evidence for the superiority of the value
relevance of IFRS adopted by CIC over the value relevance of IFRS adopted by TC. For both
TC and CIC, we find that company size positively impacted the value relevance of
accounting numbers prepared under IFRS and AAOIFI standards. The value relevance of
TC adopting IFRS and AAOIFI standards is positively influenced by investor protection
and auditing and reporting standards, whereas the value relevance of CIC adopting IFRS is
positively influenced by market capitalization. One limitation of this research is the reduced
JIABR number of sampled listed TC since the authors deleted countries that use local GAAP.
Another limitation is the study period. Because of data accessibility, we have no access to
data after 2015.
Our findings are particularly relevant to standard setters, who can use value relevance
research findings to require the most suitable accounting framework that produces high-
quality accounting information for TC. Finally, given the present level of limited research in
the Takaful industry all over the world, future research could usefully pursue the
implications of our findings for mandatory and voluntary disclosure of IFRS and AAOIFI,
and for comparison of the value relevance of IFRS for Takaful general insurance versus
Takaful life insurance.

Notes
1. For value-relevance studies on IFRS and AAOIFI adoption, see Appendix.
2. We had a multicollinearity problem when referring to our correlation matrices, which we
addressed using the orthogonalization technique to solve this problem.

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Further readings
AAOIFI – Accounting and Auditing Organization for Islamic Financial Institutions (2003), Accounting
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Bahrain.
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Corresponding author
Hakim Ben Othman can be contacted at: hakim.benothman@icn-artem.com
View publication stats
Appendix

Single/multi
Paper country study Sample Period Accounting measures Standards Standards effect

Agbodjo et al.(2021) Multi 15 Countries 2010–2018 EPS, BVPS, price, return, IFRS, AAOIFI Positive
Kadri (2016) Single Malaysia 1998–2012 Earnings, book value, market IFRS Positive
price
Dimitrppoulos et al. (2010) Single Greece 1995–2004 Returns, earnings IFRS Positive
Anandarajan et al. (2011) Multi 18 European countries 1999–2008 Loan loss provisions, earnings IFRS Positive
Manganaris et al. (2016) Multi 15 European countries Earnings, return, BV/TA, IFRS Positive
EPS/Pi,t1
Manganaris et al. (2015) Multi 15 European Countries 1998 – 2011 Earnings, return, BV/TA, IFRS Positive
EPS/Pi,t1
Venkatachalam (1996) Multi 14 European countries 2005–2012 Fair value, book value, cash IFRS Positive
and cash equivalent

AAOIFI adoption
Value relevance
relevance
value

studies on IFRS and

Table A1.
Comparing the