What makes Islamic banks different ? A multivariate approach

Mohammad Bitar (mohammad.bitar@concordia.ca), Philippe Madiès (philippe.madies@univ-grenoble-alpes.fr) and Ollivier Taramasco (ollivier.taramasco@univ-grenoble-alpes.fr)
Additional contact information
Mohammad Bitar: Concordia University [Montreal]
Philippe Madiès: CERAG - Centre d'études et de recherches appliquées à la gestion - UGA [2016-2019] - Université Grenoble Alpes [2016-2019]
Ollivier Taramasco: CERAG - Centre d'études et de recherches appliquées à la gestion - UGA [2016-2019] - Université Grenoble Alpes [2016-2019]

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Abstract: Using data from 8615 banks (including 123 Islamic banks) in 124 developed and developing countries for the period between 2006 and 2012, we examine the financial characteristics that distinguish between conventional and Islamic banks. As banks' financial characteristics are multi-faceted concepts, our indicators are constructed using principal component analysis. We find that Islamic banks are more capitalized, more liquid and more profitable, but have more volatile earnings compared to US and European banks. However, similarities in terms of liquidity and earnings volatility are more noticeable when the sample is limited to banks operating in countries where both systems coexist. Finally, we find that higher capital makes the returns of Islamic banks more volatile, while higher liquidity decreases the profitability of conventional banks.

Keywords: Principal component analysis; Islamic bank; Capital; Liquidity; Profitability (search for similar items in EconPapers)
Date: 2017-06
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Citations: View citations in EconPapers (23)

Published in Economic Systems, 2017, 41 (2), pp.215-235. ⟨10.1016/j.ecosys.2016.06.003⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01980549

DOI: 10.1016/j.ecosys.2016.06.003

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