How multiple large shareholders affect bank profitability under the dispersion and the coalition hypotheses? An insight from the MENA region

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Rim Boussaada ◽  
Abdelaziz Hakimi
Keyword(s):  
Method Of Moment ◽  
Mena Region ◽  
Return On Assets ◽  
Bank Profitability ◽  
Content Type ◽  
Return On Equity ◽  
Large Shareholders ◽  
Conventional Banks ◽  
Generalized Method Of Moment ◽  
Ownership Composition

PurposeThe aim of this paper is to examine whether multiple large shareholders and their interactions affect bank profitability in the MENA region.Design/methodology/approachTo achieve this goal, we used a sample of conventional banks in the MENA region observed during the period 2004–2015. We performed the System Generalized Method of Moment as the empirical approach.FindingsEmpirical results indicate that under the dispersion hypothesis, multiple large shareholders (MLS) tend to reduce bank profitability for both return on assets (ROA) and return on equity (ROE). However, under the alignment of interests’ hypothesis, coalition between the first and the second largest shareholder increases bank profitability only for ROA. We also find that an additional large shareholder, beyond the two largest, reduces bank return equity.Originality/valueTo the best of our knowledge, to date, there is no study that investigates the effect of MLS and the bank profitability in the MENA region. Indeed, this study shows the importance of considering ownership composition among large shareholders in banking studies.

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

2016 ◽  
Vol 9 (1) ◽  
pp. 46-66 ◽  
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.

Assessing the bank profitability in the MENA region

2014 ◽  
Vol 7 (3) ◽  
pp. 305-332 ◽  
Author(s):  
Rim Ben Selma Mokni ◽  
Houssem Rachdi
Keyword(s):  
Method Of Moments ◽  
North Africa ◽  
Banking Sector ◽  
Middle Eastern ◽  
Generalized Method Of Moments ◽  
Mena Region ◽  
Bank Profitability ◽  
Content Type ◽  
Conventional Banks ◽  
Econometric Technique

Purpose – Which of the banking stream is relatively more profitable in Middle Eastern and North Africa (MENA) region? Design/methodology/approach – The empirical study covers a sample of 15 conventional and 15 Islamic banks for the period 2002-2009.The authors estimate models using the generalized method of moments in system, of Blundell and Bond (1998). They exploit an up-to-date econometric technique which takes into consideration the issue of endogeneity of regressors to evaluate the comparative profitability of Islamic and conventional banks in the MENA region. Findings – Empirical analysis results show that the determinants’ significance varies between Islamic and conventional banks. Profitability seems to be quite persistent in the MENA region reflecting a higher degree of government intervention and may signal barriers to competition. Originality/value – The main interest is to develop a comprehensive model that integrates macroeconomic, industry-specific and bank-specific determinants. The paper makes comparison of the performance between two different banking systems in the MENA region. The authors consider a variable crisis to gain additional insights into the impacts of the financial crisis on MENA banking sector.

Risk disclosure and financial performance: the case of Islamic and conventional banks in the GCC

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ayman E. Haddad ◽  
Hussain Alali
Keyword(s):  
Financial Performance ◽  
United Arab Emirates ◽  
Best Practice ◽  
Annual Reports ◽  
Risk Disclosure ◽  
Return On Assets ◽  
Content Type ◽  
Return On Equity ◽  
Gcc Countries ◽  
Conventional Banks

Purpose This study aims to explore the extent of risk disclosure (RD) among conventional banks (CBs) and Islamic banks (IBs) listed on stock markets in the Gulf cooperation council (GCC). It also examines the influence of RD on the banks’ financial performance as measured by return on assets (ROA) and return on equity (ROE). Design/methodology/approach This study uses content analysis to examine RD in the annual reports of 16 CBs and 14 IBs in the GCC for a sample of 240 firm-year observations over the period 2007 to 2014. Findings The study shows no significant differences between the RD reported in the annual reports of CBs and that of IBs. On average, a CB reported 234 sentences while an IB disclosed 244 sentences of RD in its annual report. The authors also find that both types of banks had an upward trend over the periods. While the means of RD reported by CBs have significantly improved over the period, the RD reported by IBs has not. Similar results are also found when the authors compared the RD pre- and post-financial crisis period. Finally, the authors find that there is a significant association between RD and both models of financial performance (ROA and ROE) for IBs, after controlling other variables. However, RD has a significant association with only ROE for CBs. Research limitations/implications The bank selection was restricted to publicly traded banks in the GCC. Other financial institutions and different types of industries were not considered. Further research could determine whether the results obtained in this study could be generalized to different industries in the GCC and or in other countries. Practical implications This study provides evidence on the significant association between RD and the financial performance of CBs and IBs in GCC countries. This study could be helpful to regulatory authorities in encouraging banks to adopt the best practice of RD and thus promote banks’ transparency. Originality/value This is the first known study to examine the RD practices of both types of banks and their association with banks’ financial performance in five-GCC countries (Kuwait, Qatar, Saudi Arabia, United Arab Emirates and Bahrain), based on a longitudinal analysis of year-end annual reports, covering eight years period from 2007 to 2014.

Contributing role of regulatory compliance and Islamic operations in bank risk: evidence from Pakistan

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Shahzad Akhtar ◽  
Haroon Hussain ◽  
Rana Yassir Hussain
Keyword(s):  
Negative Relationship ◽  
Regulatory Compliance ◽  
Bank Risk ◽  
Method Of Moment ◽  
Content Type ◽  
Direct And Indirect Impacts ◽  
Conventional Banks ◽  
Indirect Impacts ◽  
Generalized Method Of Moment

Purpose This study aims to estimate the regulatory compliance impact on the risk of banks operating in Pakistan. The direct and indirect regulatory compliance of conventional banks with Islamic operations in terms of risk from 2009 to 2017 are estimated. Design/methodology/approach This study used a two-step system generalized method of moment (GMM) (dynamic panel) to examine the relationship between regulatory compliance, Islamic operations and the bank risk and tested the direct and indirect impacts of regulatory compliance and Islamic operations on the said risk. Findings Regulatory compliance has a significant and positive relation with bank risk, whereas the Islamic bank operations have a significant and negative relationship. Thus, regulatory compliance creates pressure on banks, but the Islamic operations of conventional banks reduce this pressure in direct and indirect ways. Practical implications Per the policy of State Bank of Pakistan (SBP), banks shall pursue Islamic operations to reduce regulatory pressure and widen their scope. The results suggest that regulatory compliance creates pressure on bank risk irrespective of the type of the bank. Thus, the SBP should seek the appropriate measure for this occurrence. Originality/value To the best of the authors’ knowledge, this work is the very first study that has considered the unique Islamic operations of conventional banks and estimated its impact on risk. Moreover, this work examined two types of bank risk instead of employing stability and market measure. This research is also the first to implement a two-step system GMM for the methodology.

Does Bank Profitability Stimulate Economic Growth in the Arab Region?

2020 ◽  
Vol 0 (0) ◽  
Author(s):  
Omar Ghazy Aziz
Keyword(s):  
Financial Development ◽  
Method Of Moments ◽  
Positive Impact ◽  
Generalized Method Of Moments ◽  
Arab Countries ◽  
Return On Assets ◽  
Bank Profitability ◽  
Arab Region ◽  
Return On Equity ◽  
The Impact

AbstractThis study empirically investigates the impact of bank profitability, as a complementary measure of financial development, on growth in the Arab countries between 1985 and 2016. Using a generalized method of moments (GMM) estimation to test the impact of the bank profitability on growth, this study utilises two variables in the econometric model which are return on assets and return on equity. This study reveals that both variables of bank profitability are positive and significant. This confirms that the bank profitability, beside other financial development variables, has positive impact on the growth. This study points out some important implications based on this result.

Does corporate governance affect the performance of Islamic banks? New insight into Islamic countries

2020 ◽  
Vol 20 (6) ◽  
pp. 1073-1090 ◽  
Author(s):  
Ejaz Aslam ◽  
Razali Haron
Keyword(s):  
Corporate Governance ◽  
Audit Committee ◽  
Positive Impact ◽  
Islamic Banks ◽  
Governance Mechanism ◽  
Method Of Moment ◽  
Content Type ◽  
Return On Equity ◽  
Islamic Countries ◽  
And Performance

Purpose Corporate governance plays a significant role to overcome agency issues and develop the culture of transparency and openness. In this context, this paper aims to examine how corporate governance mechanisms affect the performance of Islamic banks (IBs). Design/methodology/approach Stepwise, two-step system generalize method of moment estimation technique is used in the analysis in which control variables are added into the model sequentially. This study used data on 129 IBs from 29 Islamic countries (Middle East, South Asia and Southeast Asia) during the period of 2008 to 2017. Findings The findings suggest that the audit committee (AUDC) and Shariah board (SB) have positive impact on the performance of IBs (return on assets and return on equity). However, board size and risk management committee have negative and significant effect on the performance of IBs. CEO duality and non-executive directors have mixed relationship with the performance of IBs. These results support the argument that IBs need to improve their financial performance through appropriate governance mechanism. Research limitations/implications The findings of the study added a new dimension to the governance research that could be a valuable source of knowledge for policymakers and regulators to improve the existing governance mechanism for better performance of IBs. Originality/value The study fills the gap in the literature by addressing the issue of corporate governance on performance of IBs across countries. Agency theory is discussed to explain the relationship between corporate governance mechanism and performance.

scholarly journals Corporate Governance, Political Connections, and Bank Performance

2019 ◽  
Vol 7 (4) ◽  
pp. 62 ◽  
Author(s):  
Haris ◽  
Yao ◽  
Tariq ◽  
Javaid ◽  
Ain
Keyword(s):  
Corporate Governance ◽  
Profit Margin ◽  
Political Connections ◽  
Return On Assets ◽  
Board Size ◽  
Bank Profitability ◽  
Return On Equity ◽  
Net Interest Margin ◽  
The Impact ◽  
Interest Margin

This study investigates the impact of corporate governance characteristics and political connections of directors on the profitability of banks in Pakistan. The study uses the data of 26 domestic banks over the latest and large period of 2007–2016. Our findings firstly affirm that bank profitability is negatively affected by the presence of politically connected directors on the board, reporting significantly lower return on assets, return on equity, net interest margin, and profit margin. Secondly, our findings also affirm the negative political influence on the sustainability of the banking industry, reporting significantly lower return on assets, return on equity, net interest margin, and profit margin during the government transition of banks having politically connected directors sitting on their board. Our findings further report an inverted U-shaped relationship between board size and bank profitability, suggesting that a board size beyond 8–9 members decreases the profitability. The study further finds a positive impact of board composition, board independence, and director compensation on bank profitability, while also finding a negative impact of frequent board meetings, presence of foreign directors, and audit committee independence.

scholarly journals The Impact of Corporate Governance on Profitability of Conventional Banks Operating in Pakistan

2020 ◽  
Vol 1 (4) ◽  
pp. 260-267
Author(s):  
Hafiz Muhammad Naveed ◽  
Shoaib Ali ◽  
Yao Hongxing ◽  
Saqib Altaf ◽  
Jan Muhammad Sohu
Keyword(s):  
Corporate Governance ◽  
Commercial Banks ◽  
Banking Sector ◽  
Board Independence ◽  
Return On Assets ◽  
Board Size ◽  
Return On Equity ◽  
Board Directors ◽  
Conventional Banks ◽  
The Impact

The key purpose of present research study to examine the association among corporate governance and profitability banks in developing counties. For such primary objective, annually based data collected from 2004 to 2016. The data taken from annual financial reports which issued by conventional banks.  We have used ADF (Augmented Dickey Fuller) test to examine the unit-root of variables. Moreover, the multiple linear regression utilized for hypothetical estimation. The results indicates that corporate governance and conventional banks profitability of Pakistan are bidirectional (positive-negative) associated to each other. In addition, the board size (Board Directors) is negatively associated with Return on assets and return on equity of banks. Similarly, the board independence (Insider-Outsider Board Directors) is positively influenced to return on assets and return on equity of conventional banks of Pakistan. The overall findings shows that board size and board independence are highly associated with return on equity than return on assets. Moreover, banking sector in developing countries the board size should contain on appropriate strength and acquire more professional and qualified staff. An optimal number of directors in a board size there is a need of commercial banks as to increase the profitability. To enhance the investors’ confidence with the bank there is also a need of the commercial banks to increases the board independency.

scholarly journals Analysis of the determinants of bank liquidity risk: The case of Islamic banks in the UAE

2021 ◽  
Vol 119 ◽  
pp. 01008
Author(s):  
Khadija Ichrak Addou ◽  
Afaf Bensghir
Keyword(s):  
Liquidity Risk ◽  
Multiple Linear Regression Model ◽  
Capital Adequacy ◽  
Annual Data ◽  
Islamic Banks ◽  
Mena Region ◽  
Return On Assets ◽  
Return On Equity ◽  
Risk Determinants ◽  
The Impact

This article aims to examine the principal parameters that impact the liquidity risk incurred by Islamic banks in the UAE. The study examines annual data from four Islamic banks in the UAE. The Data is extracted from their annual activity reports and financial results. A multiple linear regression model is used to assess the impact of six bank-specific variables (Return on Equity, return on assets, size of the bank, liquidity gaps, non-performing loans and capital adequacy ratio) on the liquidity risk of UAE Islamic banks. The designed model shows that ROA and NPL negatively impact the liquidity risk of the studied banks, while the other determinants, namely size, ROE, liquidity gaps and CAR contribute to the improvement of liquidity of UAE banks. Thus, our empirical results complement the existing studies related to the analysis of liquidity risk determinants incurred by Islamic banks operating in the MENA region, especially Emirati banks.

How does bank liquidity creation affect non-performing loans in the MENA region?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Anas Alaoui Mdaghri
Keyword(s):  
Generalized Method Of Moments ◽  
Balance Sheet ◽  
Policy Implications ◽  
Mena Region ◽  
Policy Makers ◽  
Content Type ◽  
Mena Countries ◽  
Negative Effect ◽  
Short And Long Term ◽  
Conventional Banks

PurposeThe study aims to empirically examine the effect of bank liquidity creation on non-performing loans (NPLs) in the Middle East and North Africa (MENA) region.Design/methodology/approachBerger and Bouwman's (2009) three-step methodology was employed to calculate the level of liquidity creation of a selected sample of 111 commercial banks in ten MENA countries from 2010–2017. Next, the two-step system generalized method of moments (GMM) estimator was used to investigate the linkage between bank liquidity creation and NPLs.FindingsThe results demonstrated a significant negative effect of bank liquidity creation on NPLs in the short and long term, implying that liquidity creation through both on- and off-balance sheet activities decreases NPLs. These findings accord with the “economic-enhancing” view. Furthermore, regression analysis investigated whether this relationship remained similar for Islamic and conventional banks. The results showed that liquidity creation diminishes Islamic and conventional bank NPLs.Research limitations/implicationsThe empirical findings raise several significant policy implications. Bank liquidity creation may decrease rather than increase NPLs, although the process of liquidity creation is viewed as risky by rendering banks more illiquid. Therefore, policy-makers should encourage bank liquidity creation to stimulate the economy. In a robust economy, borrowers are more likely to repay their debts, consequently diminishing banks' NPLs.Originality/valueTo the best of the author's knowledge, the current study is the first to provide empirical evidence on the effect of bank liquidity creation on NPLs in MENA countries.

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