From Ethical Principles to Financial Decision Theoretical Foundations and Empirical Comparison with Conventional Banks of Islamic Banks Capital Structure

This study aim is to investigate and compare the factors affecting conventional and Islamic bank’s capital structure choice as well as their financial characteristics. According to the best of my knowledge, this is the first paper that mainly concentrated in comparing the determinants of capital structure of conventional and Islamic banks using a cross-country data and for a long period of time (20 years). The study revealed several findings. Firstly, descriptive statistics (equality of means test) showed that conventional banks more leveraged and liquid than Islamic banks. In contrast, Islamic banks are larger and more profitable (ROA) than conventional banks. The results also indicated that Islamic banks are not riskier than conventional banks. Secondly, the regression results showed that all variables, except tax-shield, had the same impact on both banking types capital structure. It been found that profitability, tangibility, business risk and age correlated negatively and significantly with capital structure. In the other direction, size, liquidity and inflation had significant and positive relation with capital structure. Vis-à-vis tax-shield, this variable had a weak impact (positive) on Islamic bank’s capital structure but had no effect on conventional banks and this attributed to Islamic banks sample.

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The Relationship between Capital Structure and Performance in Gulf Countries Banks: A Comparative Study between Islamic Banks and Conventional Banks

International Journal of Economics and Finance ◽

10.5539/ijef.v7n12p140 ◽

2015 ◽

Vol 7 (12) ◽

pp. 140 ◽

Cited By ~ 4

Author(s):

Abdelrhman Ahmad Meero

Keyword(s):

Capital Structure ◽

Performance Measures ◽

Positive Relationship ◽

Nominal Exchange Rate ◽

Islamic Banks ◽

Rates Of Return ◽

Gulf Countries ◽

And Performance ◽

Conventional Banks ◽

The Relationship

This paper mainly has two objectives: the first one is to identify the similarity of capital structure between Islamic and Conventional banks; Second objective is to detect the relationship between capital structure variables and performance of Islamic and Conventional Banks in Gulf Countries (GC). This investigation has been performed on a sample of 16 GC Banks (8 Islamic Banks and 8 Conventional Banks) for the period 2005-2014. ROE (return on equity) and ROA (return of asset) have been used as performance measures. Total debt to total assets, Equity to total assets, Debt to equity ratios have been used as capital structure measures. Size of the bank has been considered as dependent variable to identify its relationship with bank performance. Data collected were analyzed by using SPSS software. The results of the research indicate a similarity of capital structure of Islamic banks and Conventional banks in Gulf Countries. ROA as performance measurement has a significant negative relationship with financial leverage and a positive relationship with equity to assets ratio. This relationship is identified at Islamic banks, Conventional banks and all the banks of the sample. Bank size has a positive relationship with ROA and ROE as performance measures in Islamic and Conventional banks. modifications on the market of 122 equity indices and 39 commodities in the eight approaches, depending on the investment time horizon (October-15th May, November-15th May, October-1st May, November-1stMay) and types of computed rates of return (accrued rates of return and average daily geometric rates of return). Calculations presented in this paper indicate the presence of the sell-in-May-and-go-away effect on the analyzed markets in the classic time frame, as well as in the different time frames. ation in the country. Markets determine nominal exchange rate should prevail in the economy. The country should regulate its foreign reserve policy by setting a threshold, above which excess deposit should be plough back to the domestic economy inform of investments rather than support excessive importation.

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Relationship between Capital Structure and Profitability: Dual Banking Perspective

NICE Research Journal ◽

10.51239/nrjss.v0i0.164 ◽

2020 ◽

pp. 181-191

Author(s):

Mudassir Zaman ◽

Shakir Ullah ◽

Arshad Ali

Keyword(s):

Capital Structure ◽

Stock Exchange ◽

Banking System ◽

Financial Statements ◽

The Other ◽

Islamic Finance ◽

Islamic Banks ◽

Return On Equity ◽

Conventional Banks ◽

The Relationship

This study looks into the relationship between the capital structure and profitability of Islamic and conventional banks, listed on the Karachi Stock Exchange extracting data for 250 observations between 2006 and 2016 from their financial statements. The paper uses regression analysis to check the proposed relationship. We found a strong correlation between Debt-to-Equity (D/E) ratio and Return on Equity (ROA) in conventional banks while no significant relationship existed in Islamic banks. The findings can be explained in terms of the different deposit mechanisms employed by the two systems i.e. the conventional banking system considers all deposits as liabilities of the banks while on the other hand Islamic banks only write the current accounts as a debt. The Modaraba-based deposit accounts of Islamic banks are considered as equity. This paper contributes theoretically to the current body of Islamic finance literature in Pakistan. On the practical side, the study suggests that Islamic banks can increase their savings deposits as they pose no risk and have equity-like features.

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Overcoming the comparative confusion of the audit committee’s impact on the financial performance of conventional and Islamic banks: An international evidence in a framework of agency theory

International Journal of Finance ◽

10.47941/ijf.712 ◽

2021 ◽

Vol 6 (3) ◽

pp. 55-90

Author(s):

Achraf Haddad ◽

Mohamed Naceur Souissi ◽

Abdelfattah Bouri

Keyword(s):

Panel Data ◽

Financial Performance ◽

Agency Theory ◽

Audit Committee ◽

Islamic Banks ◽

International Evidence ◽

Secondary Role ◽

Conventional Banks ◽

Theoretical Foundations ◽

Conventional And Islamic Banks

Based on the banking and governance literature, the impacts of the audit committee quality on the financial performance of conventional and Islamic banks are mixed, unstable and sometimes contradictory. In this study, we consulted deeply the theoretical foundations of the audit committee quality on the financial performance of conventional and Islamic banks to solve the ambiguity of comparison in a framework of agency theory. Measures of financial performance and audit committee determinants are collected from 30 countries. Under the panel data estimations, data were collected from 112 banks of each type that have published their reports regularly during the period (2010-2019). Overall, we obtained 1120 bank-year observations in each sub-sample. The results showed that the audit committee in conventional banks negatively affected their financial performance. However, in Islamic banks, it revealed a vague impact because of his secondary role.

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Islamic ethics, capital structure and profitability of banks; what makes Islamic banks different?

International Journal of Islamic and Middle Eastern Finance and Management ◽

10.1108/imefm-05-2016-0061 ◽

2019 ◽

Vol 13 (1) ◽

pp. 116-134

Author(s):

Kaouther Toumi

Keyword(s):

Logistic Regression ◽

Capital Structure ◽

Binary Logistic Regression ◽

Payout Policy ◽

Islamic Banks ◽

Multivariate Statistical ◽

Content Type ◽

East Region ◽

Financial Characteristics ◽

Conventional Banks

Purpose The paper aims to investigate whether the Islamic banks (IBs) and the conventional banks (CBs) could be distinguished from one another on the basis of their capital structure, profitability and their respective determinants with using a multivariate statistical method for analysis of data. Design/methodology/approach The paper provides a comparative study based on a predictive model, the binary logistic regression, using a sample of 53 listed CBs and 45 listed IBs from the Middle East region for the period 2006-2014. Findings The binary logistic regression reveals that profitability and capital structure are good predictors that help to distinguish between the two categories of banks. Results suggest that higher are the net margin and capital ratio, higher is the probability that the bank is Islamic. For the return on assets, results show that lower is this value; higher is the likelihood that the bank is Islamic. Regarding their related determinants, the findings suggest first that banks with higher dividend payout policy, financing ratio, costs ratio and insolvency risk are more likely to be Islamic. Second, results suggest that banks with lower collaterals, size and credit risk are more likely to be Islamic. Research limitations/implications The study contributes to the growing literature on corporate finance and Islamic banking. Analyzing the capital structure and profitability of the two categories of banks is important for investors, financial analysts and regulators. Understanding the differences contributes to understand how following Islamic finance principles and being under Sharīʿah governance could impact the bank profitability and financial decision, as well as investors behavior. Originality/value The study contributes to the scare literature dedicated to the use of the multivariate statistical methods for the analysis of data to compare the financial characteristics of IBs and CBs.

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Is Islamic bank profitability driven by same forces as conventional banks?

International Journal of Islamic and Middle Eastern Finance and Management ◽

10.1108/imefm-12-2014-0120 ◽

2016 ◽

Vol 9 (1) ◽

pp. 46-66 ◽

Cited By ~ 18

Author(s):

Hajer Zarrouk ◽

Khoutem Ben Jedidia ◽

Mouna Moualhi

Keyword(s):

Dynamic Panel Data ◽

Islamic Banking ◽

Subprime Crisis ◽

Islamic Banks ◽

Mena Region ◽

Bank Profitability ◽

Content Type ◽

Large Sample ◽

Islamic Bank ◽

Conventional Banks

Purpose The purpose of this paper is to ascertain whether Islamic bank profitability is driven by same forces as those driving conventional banking in the Middle East and North Africa (MENA) region. Distinguished by its principles in conformity with sharia, Islamic banking is different from conventional banking, which is likely to affect profitability. Design/methodology/approach The paper builds on a dynamic panel data model to identify the banks’ specific determinants and the macroeconomic factors influencing the profitability of a large sample of 51 Islamic banks operating in the MENA region from 1994 to 2012. The system-generalized method of moment estimators are applied. Findings The findings reveal that profitability is positively affected by banks’ cost-effectiveness, asset quality and level of capitalization. The results also indicate that non-financing activities allow Islamic banks to earn higher profits. Islamic banks perform better in environments where the gross domestic product and investment are high. There is evidence of several elements of similarities between determinants of the profitability for Islamic and conventional banks. The inflation rate, however, is negatively associated with Islamic bank profitability. Practical Implications The authors conclude that profitability determinants did not differ significantly between Islamic and conventional banks. Many factors are deemed the same in explaining the profitability of conventional as well as Islamic banks. The findings reported in the current paper might be of interest for policy makers. It is recommended to better implement non-financing activities to improve Islamic bank profitability. Originality/value Unlike the previous empirical research, this empirical investigation assesses the issue whether Islamic banks profitability is influenced by same factors as conventional model. It enriches the literature in this regard by considering the specificities of Islamic banking to identify the determinants of profitability. Moreover, this study considers a large sample (51 Islamic banks) through a different selection of countries/banks than previous studies. In addition, the period of study considers the subprime crisis insofar it ranges from 1994 to 2012. Hence, this broader study allows the authors to draw more consistent conclusions.

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Fair value and banking contagion

Journal of Islamic Accounting and Business Research ◽

10.1108/jiabr-12-2014-0042 ◽

2016 ◽

Vol 7 (3) ◽

pp. 215-236 ◽

Cited By ~ 1

Author(s):

Leila Gharbi ◽

Halioui Khamoussi

Keyword(s):

Data Model ◽

Banking Sector ◽

Fair Value ◽

Islamic Banks ◽

Fair Value Accounting ◽

Content Type ◽

Gcc Countries ◽

Conventional Banks ◽

Value Changes ◽

The Impact

Purpose This paper aims to explore empirically the impact of fair value accounting on banking contagion in a comparative context between Islamic banks and conventional banks. Design/methodology/approach The analysis of the impact of fair value changes on banking contagion is carried out through a panel data model. This study covers 20 Islamic banks and 40 conventional banks operating in the Gulf Cooperation Council (GCC) countries during nine years from 2003 to 2011. Findings Empirical evidence shows that there is a significant change in dynamic volatility in GCC banking sector because of financial crisis 2008. However, results fail to confirm the hypothesis that fair value accounting is significantly associated with an increase of banking contagion for both Islamic and conventional banks operating in GCC countries. Originality/value The outcome of this study provides some insights for academicians, accountants as well as regulators in terms of enhancing the effectiveness of accounting practices.

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