Institutional and macro determinants of capital structure and distress in Islamic banks /
This study aims to examine corporate finance as well as bank specific, market and regulatory determinants of capital structure based on data of 33 publicly-listed Islamic banks in 12 countries between 2008 – 2017. At the same time, taking a broader sample of 65 listed and unlisted Islamic banks from...
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| Format: | Thesis |
| Language: | English |
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Kuala Lumpur :
IIUM Institute of Islamic Banking and Finance, International Islamic University Malaysia,
2020
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| Subjects: | |
| Online Access: | http://studentrepo.iium.edu.my/handle/123456789/10037 |
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| Summary: | This study aims to examine corporate finance as well as bank specific, market and regulatory determinants of capital structure based on data of 33 publicly-listed Islamic banks in 12 countries between 2008 – 2017. At the same time, taking a broader sample of 65 listed and unlisted Islamic banks from the same countries, this study also examines the financial stability parameters that effectively predict distress in Islamic banks. Apart from testing corporate finance parameters from past literature by systemically choosing between pooled ordinary least square, fixed and random effect models for panel regression, this study adds several idiosyncratic, legal and regulatory determinants of capital structure unique to Islamic banks. The significant factors are tested for market and book leverage as well as newly introduced 'Islamic banking leverage' that considers the impact of risk absorbency on investment accounts. The results show that larger Islamic banks with higher growth opportunities, more tangibility, smaller profitability and lower risk are likely to have higher leverage. Similarly, the findings suggest the important role played by investment accounts, off-balance sheet assets and regulatory environment in leverage decisions, providing evidence of the significance of trade-off and pecking order theories in the capital structure of Islamic banks. The results are more robust for market leverage and confirm the relevance of market-based determinants in understanding Islamic bank capital decisions. Among the macroeconomic variables, GDP growth, inflation and exchange rate are found to be significant. The findings also confirm that there are significant differences in the motivations of leverage in smaller vis-à-vis larger, systemically important Islamic banks, which suggests a relatively simple determinant model for smaller, non-systemic Islamic banks. For predicting distress in Islamic banks, logistic regression and Cox proportional hazard models were employed for testing 10-year annual data of 65 Islamic banks from 12 countries in a CAMELS framework. The study also intended to discover whether simple ratios perform better than more complex, risk-weighted measures in predicting distress in these banks. Apart from testing base model, a total of eight alternative capital and leverage indicators were examined in the model that mainly relied on financial and accounting data, and supplemented by market leverage for listed banks. In order to capture the variability in cross-country analysis and the impact of economic conditions and shocks, the study also added several macroeconomic indicators in the model. The results suggest that several formulations of equity-based, risk-weighted capital ratios and standard stability indicators offer a robust framework for the regulation and supervision of Islamic banks. Similarly, the findings suggest that market leverage for listed Islamic banks and gross revenue ratio for full sample are relevant for appraising Islamic bank stability and should be considered by standard setters and bank supervisors in their supervisory toolkit as well as other stakeholders such as investors, creditors and fund providers. The findings, however, reflect that the relatively simpler Basel III leverage ratio do not offer effective early warning signal. The study was limited by the unavailability of consistent data for listed Islamic banks in fully Islamic banking systems such as Iran and Sudan, and data of other countries for a longer time period. Similarly, the study does not investigate the 'optimality' of capital structure from the perspective of bank performance, profitability or efficiency. Moreover, several other potential determinants could have been tested had the data been available. For bank distress prediction, qualitative and non-financial factors are not included. On the same note, more than one variable for each CAMELS dimension could be tested in future studies. |
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| Item Description: | Abstracts in English and Arabic. "A thesis submitted in fulfilment of the requirement for the degree of Doctor of Philosophy in Islamic Banking and Finance." --On title page. |
| Physical Description: | xix, 355 leaves : illustrations ; 30cm. |
| Bibliography: | Includes bibliographical references (leaves 315-330). |