Islamic banking stability, efficiency and growth: the market discipline of Islamic term deposits investment accounts
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This research empirically investigates the role of profit sharing investment accounts in providing market discipline and the extent to which PSIA influences Islamic banks' stability, efficiency and financing growth, thus complementing government supervision and regulation of Islamic banks. Data from 48 Islamic banks from 13 countries in different regions over the period 2007 to 2014 were collected. A two-step system generalized method of moments (GMM) was applied to estimate the equations. The fixed and random effects and the two-step difference GMM were also applied for comparison purposes. The empirical results do support the view that PSIA is able to influence the Islamic banks’ prudent behaviour, and provide evidence that PSIA is an effective instrument of market discipline. PSIA was found to be able to reduce credit risk of Islamic banks and influence their financial health by maintaining adequate capitalization. The study further finds evidence to support that PSIA is able to provide discipline and influence Islamic banks’ cost management and a boost to their financing growth. PSIA not only improves banks’ market discipline by directly reducing non-performing loans but also influences reduction of cost to income ratio, improving the Islamic banks’ efficiency.
Profit sharing investment accounts (PSIA) , Market discipline , Islamic banking
Abd Rahman, S. (2017). Islamic banking stability, efficiency and growth: the market discipline of Islamic term deposits investment accounts (Doctoral dissertation). INCEIF, Kuala Lumpur. Retrieved from https://ikr.inceif.org/handle/INCEIF/2772