Leverage and balance-sheet size: a comparative study between Islamic and conventional banks

Yacine Hammami and Youssef Riahi

Applied Economics, 2021, vol. 53, issue 43, 4950-4961

Abstract: We carry out a comparative analysis of procyclical leverage between Islamic banks and conventional banks in the GCC countries and Malaysia. We collect an unbalanced panel data set including 57 conventional banks and 73 Islamic banks covering the period 2000–2019. First, we document strong evidence of procyclical leverage for our sample banks. Second, our results highlight that conventional banks have statistically stronger leverage procyclicality than Islamic banks, even after controlling for accounting profitability, economic conditions, bank regulations, and wholesale funding. Moreover, we document that the differential in the leverage procyclicality across Islamic banks and conventional banks has been stronger after the global financial crisis, and seems to be more pronounced in small banks compared with large banks. Our findings suggest that the differential in the leverage procyclicality across the two types of banks is related to their different business models. An implication of our results is that the low leverage procyclicality of Islamic banks is a key factor contributing to the stability of a dual banking system.

Date: 2021
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/00036846.2021.1912283 (text/html)
Access to full text is restricted to subscribers.

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:taf:applec:v:53:y:2021:i:43:p:4950-4961

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEC20

DOI: 10.1080/00036846.2021.1912283

Access Statistics for this article

Applied Economics is currently edited by Anita Phillips

More articles in Applied Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().