Does Cost Efficiency Affect Liquidity Risk in Banking? Evidence from Selected OIC Countries

Syajarul Imna Mohd Amin (), Shamsher Mohamad Ramadili Mohd () and Mohamed Eskandar Shah Mohd. Rasid ()
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Syajarul Imna Mohd Amin: School of Management Faculty of Economics and Management Universiti Kebangsaan Malaysia 43600 UKM, Bangi, Selangor MALAYSIA
Shamsher Mohamad Ramadili Mohd: International Centre for Islamic Finance (INCEIF) The Global University of Islamic Finance Lorong University A, 59100 Kuala Lumpur MALAYSIA
Mohamed Eskandar Shah Mohd. Rasid: International Centre for Islamic Finance (INCEIF) The Global University of Islamic Finance Lorong University A, 59100 Kuala Lumpur MALAYSIA

Jurnal Ekonomi Malaysia, 2017, vol. 51, issue 2, 47-62

Abstract: Cost efficiency plays a significant role in bank risk taking behaviour. This paper examines the effect of cost efficiency on the liquidity risk of Islamic banks and conventional banks in 16 OIC countries from 1999 to 2013. The findings suggest that cost efficiency has a positive effect on liquidity risk. Other significant factors of liquidity risk include capital, bank specialization, credit risk, profitability, size, GDP and inflation whereas market concentration is not significant contributor to banking liquidity risk. There is weak evidence to support the notion that Islamic banks have higher level of liquidity risk than conventional banks. The findings imply the need to provide liquidity, probably through a well-functioning money market to lower liquidity risk in banking.

Keywords: Cost efficiency; Islamic banking; liquidity risk (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ukm:jlekon:v:51:y:2017:i:2:p:47-62

DOI: 10.17576/JEM-2017-5001-5

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