Bank Risk-Taking and Legal Origin: What Do We Know about Dual Banking Economies?

Mohsin Ali, Nafis Alam, Mudeer Ahmed Khattak and Wajahat Azmi
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Mohsin Ali: School of Accounting and Finance, Faculty of Business and Law, Taylor’s University, Subang Jaya 47500, Selangor, Malaysia
Mudeer Ahmed Khattak: Department of Business Administration, Iqra University—Islamabad Campus, Islamabad 44000, Pakistan
Wajahat Azmi: Thiagarajar School of Management, Madurai District, Thiruparankundram 625005, Tamil Nadu, India

JRFM, 2022, vol. 15, issue 5, 1-13

Abstract: This paper investigates the relationship between legal origin and banks’ risk-taking behavior. We employ GMM to study a sample of both Islamic and conventional banks from 14 dual banking economies from 2005–2018. Our findings can be summarized as follows: (a) bank risk-taking and legal origin are negatively related in our sample countries, (b) Islamic banks are more stable in English law (common) countries, and (c) bank regulations have a differential effect on Islamic and the conventional banks. Our overall findings align with the dark side of the legal framework, indicating a robust legal framework to encourage bank risk-taking. The results have several implications for shareholders, regulators, and other key stakeholders.

Keywords: bank risk-taking; legal origin; Islamic banks; dual banking economies (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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