Legal rules, information transparency and Islamic bank capital decisions

Mohammad Bitar, Mohammed Benlemlih, Elias Erragragui and Jonathan Peillex

Applied Economics, 2021, vol. 53, issue 53, 6184-6203

Abstract: To what extent does the formal institutional environment influence Islamic bank capital decisions? We answer this question by assessing the effect of the legal rule index on a sample of 100 Islamic banks in 28 countries from 1999 to 2013. Our econometric analyses show that legal rule index positively and significantly influences capital ratios. The results can be explained by the idea that effective legal rules incentivize Islamic banks to hold higher capital ratios to signal better monitoring to depositors and regulators. In addition, we find that this positive association can be enhanced through strong information transparency channels, democratic and stable political institutions. These results provide insight into how a formal institutional environment can shape Islamic bank capital ratios. It further suggests that the formal institutional environment serves as a constraint on policymakers, as any given capital guideline may function very differently depending on the complexity of the formal institutional environment.

Date: 2021
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://hdl.handle.net/10.1080/00036846.2021.1937497 (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:53:p:6184-6203

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

DOI: 10.1080/00036846.2021.1937497

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 ().