Islamic ethics, capital structure and profitability of banks; what makes Islamic banks different?

Kaouther Toumi ()
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Kaouther Toumi: LGCO - Laboratoire Gouvernance et Contrôle Organisationnel - UT3 - Université Toulouse III - Paul Sabatier - UT - Université de Toulouse, LGTO - Laboratoire de Gestion et des Transitions Organisationnelles - UT3 - Université Toulouse III - Paul Sabatier - UT - Université de Toulouse

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Abstract: Purpose The paper aims to investigate whether the Islamic banks (IBs) and the conventional banks (CBs) could be distinguished from one another on the basis of their capital structure, profitability and their respective determinants with using a multivariate statistical method for analysis of data. Design/methodology/approach The paper provides a comparative study based on a predictive model, the binary logistic regression, using a sample of 53 listed CBs and 45 listed IBs from the Middle East region for the period 2006-2014. Findings The binary logistic regression reveals that profitability and capital structure are good predictors that help to distinguish between the two categories of banks. Results suggest that higher are the net margin and capital ratio, higher is the probability that the bank is Islamic. For the return on assets, results show that lower is this value; higher is the likelihood that the bank is Islamic. Regarding their related determinants, the findings suggest first that banks with higher dividend payout policy, financing ratio, costs ratio and insolvency risk are more likely to be Islamic. Second, results suggest that banks with lower collaterals, size and credit risk are more likely to be Islamic. Research limitations/implications The study contributes to the growing literature on corporate finance and Islamic banking. Analyzing the capital structure and profitability of the two categories of banks is important for investors, financial analysts and regulators. Understanding the differences contributes to understand how following Islamic finance principles and being under Sharīʿah governance could impact the bank profitability and financial decision, as well as investors behavior. Originality/value The study contributes to the scare literature dedicated to the use of the multivariate statistical methods for the analysis of data to compare the financial characteristics of IBs and CBs.

Date: 2019-11-25
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Published in International Journal of Islamic and Middle Eastern Finance and Management, 2019, 13 (1), pp.116-134. ⟨10.1108/IMEFM-05-2016-0061⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03175804

DOI: 10.1108/IMEFM-05-2016-0061

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