A value-based measure of market power for the participatory deposits of Islamic banks

Kenneth Baldwin and Maryam Alhalboni

Journal of International Financial Markets, Institutions and Money, 2023, vol. 87, issue C

Abstract: Traditional earnings-based measures of market power cannot be applied to Islamic banks since depositors are investors and not creditors. We develop a new market power measure based on the capitalized value of a bank’s deposit funds’ management fees in which more powerful banks price deposits to create greater long-term value, whilst less powerful banks target short-term earnings or risk management goals. Applying panel VAR and two-step system GMM to international data from 1990 to 2022, we validate the measure by showing that deposit growth rates (Granger) cause market power and are the only significant determinant across all two-step system GMM model and sub-sample variants.

Keywords: Market Power; Value-Based Measure; Deposits; Islamic Banking; Optimal Profit-Sharing Ratio (search for similar items in EconPapers)
JEL-codes: G01 G12 G21 L10 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:87:y:2023:i:c:s104244312300077x

DOI: 10.1016/j.intfin.2023.101809

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