The Effect of Market Power on Stability and Performance of Islamic and Conventional Banks

Ali Mirzaei ()
Additional contact information
Ali Mirzaei: Brunel University London

Islamic Economic Studies, 2011, vol. 18-1, 51-89

Abstract: Bank-level panel data are used to test the effects on risk and returns, of market power, banking and bank-environment activities with respect to a total of 175 Islamic and conventional banks in 12 Middle Eastern countries. By incorporating the traditional SCP and the RMP hypotheses, I assess the relatively high bank returns in Islamic banking system. The results indicate that Islamic banking systems are generally biased toward the RMP hypothesis, but there is evidence that supports the traditional SCP paradigm in conventional banks. I find that interest rate spreads appear to present conventional banks with a trade-off between risk and returns. Off-balancesheet activities increase bank profitability and stability for both markets. Furthermore, most of other bank-specific and macroeconomic variables such as capital adequacy, liquidity and cost efficiency are significant, although their impact and relation with profits and stability is not always the same for Islamic and conventional banks. Finally, in the extended dynamic model, the results show that profitability persists strongly, suggesting that a departure from a perfectly competitive market structure may be very substantial.

Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.irti.org/English/Research/Documents/IES/055.pdf Full text (application/pdf)
http://www.isdb.org/irj/go/km/docs/documents/IDBDe ... lity_Ali_Mirzaei.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ris:isecst:0027

Access Statistics for this article

Islamic Economic Studies is currently edited by Salman Syed Ali and Anis Ben Khedher

More articles in Islamic Economic Studies from The Islamic Research and Training Institute (IRTI) Contact information at EDIRC.
Bibliographic data for series maintained by IRTI Staff () and ().