Control of corruption, diversification and asset quality of Islamic and conventional banks

Naiwei Chen (), Hsin-yu Liang () and Min-Teh Yu ()
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Naiwei Chen: Jiangxi Normal University, China
Hsin-yu Liang: Feng Chia University, Taiwan

Economics Bulletin, 2016, vol. 36, issue 3, 1280-1286

Abstract: The study examines whether and how control of corruption (CC) influences asset quality of banks directly and indirectly through diversification. A review of banks in three Islamic countries (Indonesia, Malaysia, and Pakistan) from 2006 to 2012 reveals that CC has a positive effect on asset quality of Islamic banks only. In addition, diversification typically has a negative effect on asset quality, but such a negative effect weakens as CC becomes more effective, particularly for Islamic banks. Furthermore, the modifying effect of CC is particularly found in more corrupt countries (Indonesia and Pakistan) as opposed to a less corrupt country (Malaysia).

Keywords: corruption; diversification; asset quality; agency problem; Islamic banks (search for similar items in EconPapers)
JEL-codes: G2 G3 (search for similar items in EconPapers)
Date: 2016-07-08
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