Moral hazard and risk-taking incentives in Islamic banks, does franchise value matter!

2017 ◽  
Vol 10 (1) ◽  
pp. 42-59 ◽  
Author(s):  
Mehdi Mili ◽  
Sami Abid
Keyword(s):  
Moral Hazard ◽  
Risk Taking ◽  
Bank Risk ◽  
Islamic Banks ◽  
Total Risk ◽  
Empirical Examination ◽  
Content Type ◽  
Islamic Bank ◽  
Franchise Value ◽  
The Impact

Purpose This paper aims to examine risk-taking in Islamic banks by exploring moral hazard and owner/manager agency problems simultaneously. Design/methodology/approach The authors propose to estimate a model of bank risk-taking that includes both franchise value and ownership structure as explanatory factors of bank risk. Findings The results show that franchise value is an important determinant of Islamic bank risk-taking. Banks with high franchise values are less likely to take risks than banks with low franchise value. In contrast, outside block holders have, at best, limited influences on bank risk-taking. Originality/value This paper conducts the first empirical examination of the relationship between managerial risk preferences and Islamic banks ownership. The authors examine simultaneously the effect of franchise value and owner/manager problem on Islamic bank risk taking behavior. They consider separately the impact on total risk, systematic risk and bank specific risk.

The consumers’ commitment and materialism on Islamic banking: the role of religiosity

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Junaidi Junaidi ◽  
Ready Wicaksono ◽  
Hamka Hamka
Keyword(s):  
Structural Equation ◽  
Survey Study ◽  
Equation Modeling ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Content Type ◽  
Positive Effects ◽  
Islamic Bank ◽  
Muslim People ◽  
The Impact

Purpose This paper aims to investigate whether and how religiosity (e.g. extrinsic and intrinsic) influences the mediator variables (consumers’ commitment and materialism) in the Islamic bank consumers context. It also examines how the mediators should be influence consumers’ preferences. Design/methodology/approach In total, 658 Muslim people and Islamic bank consumers were recruited for a survey study and structural equation modeling was used to test the research hypotheses. Findings The empirical results indicate that religiosity (e.g. extrinsic and intrinsic) has significant and positive effects on consumers’ commitment and materialism, whereas intrinsic religiosity has no significant effect on consumers’ commitment which subsequently influences consumers’ preference. Furthermore, mediator variables (e.g. consumers’ commitment and consumers’ materialism) have partial mediators between religiosity and consumers’ preferences. Research limitations/implications The current study was limited to Indonesian Muslim people; there is a future need to study consumers’ attitudes and engagement in religious products and services (e.g. Islamic brands). It is can help practitioners, regulators and researchers to observe the dynamic behavior to elaborate on the impact of religion and Islamic products on consumers’ preference. Practical implications The bank managers and regulators should enhance the information of products and services Islamic banks and the difference principle between conventional banks. Moreover, enlighten the consumers about the principle operation of Islamic banks from the perspective of marketing and religiosity. Originality/value This study contributes to consumers’ behavior literature and, specifically, for the decision-making process through developing and testing a model of religious determinants toward Islamic bank products, as well as offers new insights into the determinants of religion and consumers’ decision process toward Islamic banking.

Capital regulation, competition and risk-taking behavior of Indian banks in a simultaneous approach

2018 ◽  
Vol 44 (4) ◽  
pp. 459-477 ◽  
Author(s):  
Santi Gopal Maji ◽  
Preeti Hazarika
Keyword(s):  
Human Capital ◽  
Risk Taking ◽  
Value Added ◽  
Capital Adequacy ◽  
Bank Risk ◽  
Capital Regulation ◽  
Content Type ◽  
Risk Taking Behavior ◽  
Indian Banks ◽  
The Impact

Purpose The purpose of this paper is to investigate the association between capital regulation and risk-taking behavior of Indian banks after incorporating the influence of competition. Further, the study intends to enrich the existing literature by providing empirical evidence on the role of human resources in managing risk along with the influence of other bank specific and macroeconomic variables. Design/methodology/approach Secondary data on 39 listed Indian commercial banks are collected from “Capitaline Plus” corporate data database for a period of 15 years. Capital is measured by capital adequacy ratio as defined by the regulators, and two definitions of risk – credit risk and insolvency risk – are employed. Competition is measured by Herfindahl-Hirschman deposits index, concentration ratio and H-statistic. The value-added intellectual coefficient model is employed to compute human capital efficiency (HCE). Three-stage least squares technique in a simultaneous equation framework is used to estimate the coefficients. Findings The study finds that absolute level of regulatory capital and bank risk are positively associated, although the influence of capital on risk is not statistically significant. The influence of competition on risk is negative for all the models, which supports the “competition stability” view. The impact of human capital on bank risk is also negative for all cases. Practical implications The findings of the study are useful for the decision makers in several ways based on the inverse influence of competition and HCE on bank risk. Further, the observed positive association between capital and risk indicates that the capital regulation is not sufficient to enhance the stability in the banking sector. Originality/value This is the first study in the Indian context that incorporates the competition in the banking industry as an explanatory variable in the extant bank capital and risk relationship.

ShariahSupervisory Board Report (SSBR) in Islamic banks

2018 ◽  
Vol 11 (2) ◽  
pp. 274-296 ◽  
Author(s):  
Abdul Rafay ◽  
Saqib Farid
Keyword(s):  
Impression Management ◽  
Supervisory Board ◽  
Investor Behavior ◽  
Islamic Banks ◽  
Content Type ◽  
Islamic Bank ◽  
Belief Adjustment ◽  
The Impact ◽  
First Time ◽  
Practical Implications

PurposeThe primary purpose of this study is to determine the impact of information ordering inShariahSupervisory Board Report (SSBR) on investors’ behavior and perception about the performance of Islamic bank in terms ofShariahcompliance and other conventional parameters.Design/methodology/approachThe study used the belief adjustment model to evaluate the desired effects of ordering positive and negative information (if any) in SSBR of an Islamic bank. This study extends the previous literature on information ordering as a pioneer experimental study in emerging economies.FindingsEvidence shows that investors and technical users of performance reports consider SSBR as significant for financial and investment decisions from the Islamic perspective. The results indicate that the primacy effect does exist and is statistically significant.Practical implicationsThe SSBR provides the management with an excellent opportunity to communicate and convince the investors aboutShariahcompliance features of an Islamic bank. Additionally, it also highlights the functional use of impression management to manipulate the investor’ behavior and perception.Originality/valueFor the first time, this study specifically investigates the effect of conscious information ordering in SSBR of Islamic banks on investors perceptions and behaviors.

Islamic bank rent

2014 ◽  
Vol 7 (2) ◽  
pp. 170-181 ◽  
Author(s):  
Yasushi Suzuki ◽  
S.M. Sohrab Uddin
Keyword(s):  
Empirical Evidence ◽  
Banking Sector ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Content Type ◽  
Islamic Bank ◽  
Franchise Value ◽  
Conventional Banks ◽  
First Time ◽  
Rent Theory

Purpose – This paper aims to draw on the bank rent approach to evaluate the existing pattern of financing of Islamic banks and to propose a fairly new conceptualization of Islamic bank rent. Design/methodology/approach – The bank rent theory is adopted to generate the theoretical underpinnings of the issue. After that, empirical evidence from the banking sector of Bangladesh is used to support the arguments. Findings – Repeated transactions under murabaha are observed in the Islamic banking sector of Bangladesh. The asset-based financing gives the Bangladeshi Islamic banks relatively higher Islamic bank rent opportunity for protecting their “franchise value” as Shari’ah-compliant lenders, while responding to the periodic volatility in transaction costs of profit-and-loss sharing. Research limitations/implications – The bank rent approach suggests that the murabaha syndrome can be ironically justifiable. On the other hand, the current profit-and-loss sharing risk provides an idea of the difficulty in assuming the participatory financing with higher credit risk in practice. Islamic scholars and the regulatory authority need to design an appropriate financial architecture which can create different levels of rent opportunities for Islamic banks to avail the benefit from the variety of Islamic financing as declared by Islamic Shari’ah. Originality/value – This paper introduces a fairly new concept of “Islamic bank rent” to make sense of the murabaha syndrome. This approach also contributes to clarifying the unique risk and cost to be compensated with the spreads that Islamic banks are expected to earn. To draw empirical evidence, as far as it could be ascertained, the data of both Islamic banks and conventional banks with Islamic banking windows/branches are used for the first time.

Ownership structure and financial performance in Islamic banks

2014 ◽  
Vol 7 (2) ◽  
pp. 146-160 ◽  
Author(s):  
Sarra Ben Slama Zouari ◽  
Neila Boulila Taktak
Keyword(s):  
Corporate Governance ◽  
Financial Performance ◽  
Empirical Evidence ◽  
Ownership Structure ◽  
Policy Implications ◽  
Bank Performance ◽  
Islamic Banks ◽  
Content Type ◽  
Islamic Bank ◽  
The Impact

Purpose – This study aims to investigate empirically the relationship between ownership structure (concentration and mix) and Islamic bank performance, with a special attention to the identity of the block investor (foreign, family, institutional and state). Design/methodology/approach – Regression analyses are conducted to test the impact of the identity of the first shareholders and the degree of concentration on Islamic bank performance, using a panel data sample of 53 Islamic banks scattered over > 15 countries from 2005 to 2009. Findings – Results suggest that ownership is concentrated at 49 per cent, and for 41 banks from the full sample, the ultimate owner is institutional. State investors come in second place, followed by family ultimate shareholders. Using return on assets and return on equity as performance measures, empirical evidence highlights the absence of correlation between ownership concentration and Islamic bank performance. It also reveals that the combined effort of family and state investors is beneficial to bank performance. Results also indicate that banks with institutional and foreign shareholders do not perform better. Empirical findings suggest that the financial crisis impacts negatively Islamic bank performance. Research limitations/implications – The use of dummy variables to measure the nature of the largest owner represents the main limitation of this study. This is due to the lack of information, as the percentage of the largest capital held referring to owner category was available only for some banks. Practical implications – This research has given a brighter insight into corporate governance and bank performance in selected Islamic banking institutions. Findings provided useful information to bank managers, investors and policy makers. Financial performance can be improved by identifying practices associated with ownership structure. So, it will have policy implications for Islamic banks as to how to improve their performance. Finally, different types of bank ownership have had different concerns about implementing corporate governance practices among Islamic banks. Originality/value – This work is the first of its kind for Islamic banks. It extends previous research by examining whether ownership structure (concentration and mix) affects performance. It also fills the gap in the literature by providing empirical evidence on a large sample involving data from 15 countries. Finally, manual data collection on ownership structure constitutes a large part of the research for this paper.

Capital regulation and ownership structure on bank risk

2019 ◽  
Vol 28 (1) ◽  
pp. 39-56 ◽  
Author(s):  
Aysa Siddika ◽  
Razali Haron
Keyword(s):  
Maximum Likelihood ◽  
Ownership Structure ◽  
Risk Taking ◽  
Commercial Banks ◽  
Dynamic Panel Data ◽  
Bank Risk ◽  
Capital Regulation ◽  
Content Type ◽  
Global Banking ◽  
The Impact

Purpose This paper aims to examine the impact of capital regulation, ownership structure and the degree of ownership concentration on the risk of commercial banks. Design/methodology/approach This study uses a sample of 565 commercial banks from 52 countries over the period of 2011-2015. A dynamic panel data model estimation using the maximum likelihood with structural equation modelling (SEM) was followed considering the panel nature of this study. Findings The study found that the increase of capital ratio decreases bank risk and the regulatory pressure increases the risk-taking of the bank. No statistically significant relationship between banks’ ownership structure and risk-taking was found. The concentration of ownership was found negatively associated with bank risk. Finally, the study found that in the long term, bank increases the capital level that decreases the default risk. Originality/value This study presents an empirical analysis on the global banking system focusing on the Basel Committee member and non-member countries that reflect the implementation of Basel II and Basel III. Therefore, it helps fill the gap in the banking literature on the effect of recent changes in the capital regulation on bank risk. Maximum likelihood with SEM addresses the issue of endogeneity, efficiency and time-invariant variables. Moreover, this study measures the risk by different proxy variables that address total, default and liquidity risks of the banks. Examining from a different perspective of risk makes the study more robust.

Predicting behavioural intention toward Islamic bank: a multi-group analysis approach

2019 ◽  
Vol 10 (4) ◽  
pp. 1091-1103 ◽  
Author(s):  
Dwi Suhartanto
Keyword(s):  
Group Analysis ◽  
Partial Least Square ◽  
Least Square ◽  
Behavioural Intention ◽  
Islamic Banks ◽  
Content Type ◽  
Islamic Bank ◽  
Bank Managers ◽  
The Impact ◽  
Practical Implications

PurposeThis study aims to examine behavioural intention towards Islamic bank including three determinants: religiosity, trust and image across customers and non-customers.Design/methodology/approachThis study uses 400 samples, consisting of customers and non-customers of Islamic banks collected from Bandung, Indonesia. Partial least square was applied to evaluate the association between religiosity, trust, image and behavioural intention.FindingsThis study reveals a direct effect of religiosity on behavioural intention and indirect effect through trust and image for both customers and non-customers of Islamic banks. Although the impact of religiosity on trust, image and behavioural intention is significant in both the customer and non-customer sample, the effect of religiosity on the customer is higher compared to that of non-customer.Practical implicationsThis study provides an opportunity for Islamic bank managers to increase the behavioural intention among the customer, as well as non-customer. To increase behavioural intention amongst customers and non-customers, Islamic bank managers need to keep the bank operation compliant with theSharialaw, maintain a good image and gain trust from both customers and non-customers.Originality/valueThis study is the first attempt to evaluate the behavioural intention towards Islamic bank across customers and non-customers.

Intellectual capital, bank stability and risk-taking: evidence from Asian emerging markets

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Tamanna Dalwai ◽  
Dharmendra Singh ◽  
Ananda S.
Keyword(s):  
Emerging Markets ◽  
Intellectual Capital ◽  
Risk Taking ◽  
Bank Risk ◽  
Bank Stability ◽  
Gmm Estimation ◽  
Content Type ◽  
Risk Taking Behavior ◽  
Asian Emerging Markets ◽  
The Impact

Purpose The purpose of this paper is to investigate the impact of intellectual capital (IC) efficiency on the banks’ risk-taking and stability of Asian emerging markets. Design/methodology/approach This study uses a sample of 204 listed banks from 12 Asian emerging countries for the period 2010 to 2019. Data were analyzed using Ordinary Least Squares regression and checked for robustness using system generalized methods moment (GMM) estimation. The dependent variable of bank stability is measured using Z-score-based return on assets (ROA) and return on equity (ROE). The second dependent variable of bank risk is proxied by the standard deviation of ROA, ROE, non-performing loans and loan loss provision. Findings The results suggest the IC efficiency has no association with bank risk-taking and stability. The findings lend no support to the resource-based theory. The robustness of this result is confirmed by the system GMM estimation. However, support is found for the competition fragility view as high market power is associated with low risk-taking. The IC subcomponents, human capital efficiency (HCE) report a negative coefficient for bank risk-taking thereby having no support for the hypothesized relationships. Diversified banks with a higher deposit to total asset ratio resort to high risk-taking. Research limitations/implications IC efficiency does not have an impact on the bank’s risk-taking behavior and stability for Asian banks. Managers can use these findings to improve their IC and boost investor confidence. Regulatory authorities should increase its monitoring function of banks when the GDP decreases as risk-taking behavior are galvanized during this period. Originality/value This research is one of the first to provide empirical evidence of IC efficiency’s relationship with bank stability and bank risk-taking. The implications are useful for policymakers, managers and governing bodies to enhance the banks’ IC efficiency.

Profit- and loss-sharing impact on Islamic bank liquidity in GCC countries

2020 ◽  
Vol 11 (9) ◽  
pp. 1791-1806
Author(s):  
Khoutem Ben Jedidia
Keyword(s):  
Liquidity Risk ◽  
Profit Sharing ◽  
Capital Adequacy ◽  
Empirical Literature ◽  
Islamic Banks ◽  
Content Type ◽  
Islamic Bank ◽  
Gcc Countries ◽  
Long Run ◽  
The Impact

Purpose The purpose of this paper is to empirically assess the impact of the principle of profit- and loss-sharing (PLS) on the exposure to liquidity risk of Islamic banks in Gulf Corporation Council (GCC) countries. The Islamic bank activity is distinguished by a PLS principle, which is likely to involve specificities in the bank liquidity issue. Design/methodology/approach This paper investigates the determinants of Islamic bank liquidity over the period 2005–2016 using a panel of 23 Islamic banks in GCC. The system of generalized method of moment estimators is applied. Findings The findings reveal that while profit-sharing investment accounts (PSIAs) are inversely proportional to Islamic bank liquidity, the PLS investment does not seem to act as a determinant of the bank liquidity. The fact that PSIAs are globally short-run accounts, but finance long-run projects leads to a substantial maturity mismatches, which limits the availability of liquidity buffer and exacerbates the bank’s exposure to liquidity risk. Moreover, capital adequacy ratio has significant and positive association with bank liquidity, as a strong capital ratio helps to strengthen the liquidity control. However, return on assets has a negative significant impact on bank liquidity. For instance, if the bank holds more cash, it deprives itself from placing funds and earning returns, which causes its profitability to decline. Practical implications This paper gives further insights to better improve the liquidity risk management in a context of scarcity of Shariah-compliant instruments. Islamic bank needs to determine the PLS purpose and goals to be consistent with the “bank’s financing policy” and convince its depositors to use their deposits for medium and long-run investments. Originality/value Unlike previous empirical research, this investigation tries to better grasp the Islamic bank liquidity issue by focusing on the PLS impact on liquidity risk. It aims to fill in the gap in the empirical literature on this topic.

Does economic freedom matter for risk-taking? Evidence from MENA banks

2016 ◽  
Vol 8 (2) ◽  
pp. 114-136 ◽  
Author(s):  
Saibal Ghosh
Keyword(s):  
Risk Taking ◽  
Instrumental Variable ◽  
Design Methodology ◽  
Economic Freedom ◽  
Bank Risk ◽  
Cross Sectional ◽  
Content Type ◽  
Level Data ◽  
Risk Appetite ◽  
The Impact

Purpose The relevance of economic freedom in influencing bank risk taking has not been adequately addressed in the literature. In this connection, employing bank-level data for 2000-2012, the purpose of this paper is to examine the impact of economic freedom on risk taking by MENA banks. Design/methodology/approach Given the cross-sectional time-series nature of the data, the author employs panel data techniques to explore this issue. In addition, the author examines the robustness of the results using instrumental variable techniques. Findings The findings appear to suggest that economic freedom exerts a significant and non-negligible impact on bank risk taking. Among the sub-components of economic freedom, it is observed that higher levels of both business and monetary freedom increase variability of profits and, thereby, raise the risk appetite of banks. Risk taking by banks appears to be reliably lower after the crisis than in the period prior to it, although there was a substantial increase in bank risk taking during the crisis. Originality/value To the best of the author’s knowledge, this is one of the earliest studies to explore the interlinkage between economic freedom and bank risk taking for MENA banks.

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