The Impact of Governance Indicators on Accounting Conservatism

An Analytical Study of the Iraqi and Arab Banking Sector

Abstract

This research aims to study the impact of international governance indicators on the level of accounting conservatism in the Iraqi and Arab banking sectors, using the Non-Performing Loan (NPL) indicator. The independent variable is represented by the international governance indicators: control of corruption, government effectiveness, regulatory quality, rule of law, voice and accountability, and political stability and absence of violence. The dependent variable is represented by accounting conservatism, expressed as the percentage of non-performing loans. The research relied on unbalanced panel data models for several Arab countries, including Iraq, during the period 2006–2023. This data was analyzed using panel models (cumulative, random, and fixed) via EViews software, with the application of the Hausman test. The results showed that government effectiveness has a significant and inverse effect on non-performing loans, indicating that the efficiency of government policies contributes to improving borrowers' ability to repay and reducing the need for high accounting provisions. Based on the findings, the research recommends the need to enhance the effectiveness of Arab governments, develop legal and regulatory systems that achieve a balance between transparency and protecting financial stability, in addition to supporting banks in applying expected credit loss standards that enhance the reliability of financial statements.