An Empirical Investigation on the Relation between Disclosure and Financial Performance of Islamic Banks in the United Arab Emirates

The paper examines the level of disclosure on Islamic banks' performance in the United Arab Emirates (UAE). The data was collected through content analysis of annual reports and financial statements of all fully-fledged Islamic banks working in the UAE over the period 2009 to 2013. Return on Assets is used as a proxy for the performance of Islamic banks while disclosure index is used as a proxy for Islamic banks' disclosure. Also, predetermined variables are used in the study like Size, Deposits, Non-Performing Investments and Capital to Risk Weighted Assets Ratio. Two-Stage Least-Square regression method is used to check the interdependence relationships between disclosure and performance of Islamic banks in the UAE. The results show a significant relationship between performance and disclosure in the UAE Islamic banks. Our regression results show that Islamic banks with higher levels of disclosure lead to higher operating performance. Furthermore, the performance has a great impact on the level of disclosure which means Islamic banks with high performance measures will disclose more information for investors and other institutions in order to reduce the cost of equity and increase their values in the market. This study is considered as a battery for further studies in the relationship between disclosure and financial performance of Islamic banks at a global level.