International Journal of Business and Management Invention ISSN (Online): 2319 – 8028, ISSN (Print): 2319 – 801X www.ijbmi.org Volume 2 Issue 10ǁ October. 2013ǁ PP.96-103 www.ijbmi.org 96 | Page Information Quality, Credit Risk and Performance: Empirical Evidence In Tunisian Banking Context Mohamed Ali ZARAI 1 And Hedi BAAZAOUI 2 1 Associate Professor of Accounting at Al Baha University, Kingdom of Saudi Arabia 2 Hedi BAAZAOUI, University of Kairouan, Tunisia ABSTRACT : The objective of this paper is to study the determinants of credit risk in banking sector. Through the study on banking institutions on the period 2003-2011, we found that performance, audit opinion, and audit quality are the fundamental determinants of the banking credit risk level. However, information quality proxied by discretionary accruals is not related to credit risk. In the literature, we find the importance of banking regulation and its enforcement to improve market discipline, and efficient resource allocation. KEY WORDS: disclosure, risk, performance, regulation. I. INTRODUCTION Financialization is recognised as a key feature of the 2008 financial crisis (Hatherly and Kretzschmar, 2011: 209). Those authors argue that financialization has been permitted through the failure of accounting to distinguish distributable income from capital gains/transfers and to distinguish productive from speculative capital. Literature has demonstrated the important role of several risks and the weakness of banking regulation in explaining of financial crisis.After financial scandals and adoption of treadway committee reports (COSO report 1 and COSO report 2), business world thinks of the actual and potentiel risks. In fact, the COSO report 1 provides a great importance to evaluate risks, essential composant of internal control and the COSO report 2 is reserved to risk management.Thus, the information disclosure viewed through the angle of information quality and risk attracts the attention of several research works. Arif, Fah and Ni (2013) examine the impact of unexpected earnings and risk factors on share price changes in eight Organization of Economic cooperation and Development European countries. They find that credit risk, price risk, exchange rate risk, and solvency risk are significantly correlated with share price changes. Credit risk appears to be the most critical risk, while price risk and exchange rate risk are also significant in both large and small economies in Europe (Arif, Fah and Ni, 2013: 103). Only credit risk is significantly influencing the earnings in all countries except in Turkey. Cheng (2012) uses discretionary loan loss provisions as a proxy for managing specific accruals, given that loan loss provisions are a very important accrual for banks. Managers are more likely to utilize loan loss provisions to meet earnings targets if the magnitude of earnings manipulation is close to the limit of loan loss provisions (Cheng, 2012: 23).Ng (2011) demonstrates that information quality is associated negatively to the liquidity risk. Information quality is measured by earnings precision, accruals quality, financial analysts’ forwards and agregated quality. High correlations were observed between the information quality proxies and both liquidity risk and market risk.Cabedo and Tirado (2004: 182) define in detailed manner the different risk categories. The financial risks have a direct effect on depreciation of value of monetary assets and liabilities. They are integrated market risk, credit risk, liquidity risk, legal risk and operational risk. For non financial risks, there are business risk and strategic risk. This work begins with the literature review (section 2). The regulation of credit risk in Tunisia is examined in section 3. In section 4, research methodologie is presented. The results and interpretations are presented in section 5. The empirical results are summarized in section 6. II. LITERATURE REVIEW According to (Beck and Narayanamoorthy, 2013) study, Securities and Exchange Commission’s regulatory internvention in the banking industry had a greater influence on banks’ loan loss estimates. Loan loss allowances are changed in response to SEC’s intervention which having an objective to pr omote a more disciplined and consistent loan loss methodology by requiring banks to provide enhanced documentation to support their loan loss allowance estimates. US banks were not in a position to absorb mark-to-market losses on mortgage assets and goodwill impairment resulting from a credit crunch because they operate with narrow profit margins and a limited equity