Journal of Islamic Monetary Economics and Finance (JIMF)
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Bank Efficiency and Fintech-Based Inclusive Finance: Evidence from Dual Banking System
Full text linkThis paper examines the relation between fintech-based inclusive finance and bank efficiency using annual unbalanced data of 318 banks from 7 dual-banking countries over the period of 2011 to 2020. It measures bank efficiency using the data envelopment analysis (DEA) and then applies the Simar-Wilson bootstrapping regression to measure the influence of fintech-based financial inclusion on bank efficiency. From the efficiency measures, we note that Islamic banks are more efficient than their conventional counterparts. Our regression analysis indicates that fintech-based inclusive finance is positively related to bank efficiency, implying that greater implementation of digitally integrated financial system improves banking efficiency. Our findings are robust in alternative estimation methods. Our study provides some policy implications for policymakers, standard setters, and regulators
Shari’a Supervisory Board and Islamic Banks’ Insolvency Risk
Full text linkThis study examines how the characteristics and quality of Shari'a supervisory board (SSB) influence the insolvency risk of Islamic banks. It employs unbalanced panel data of 43 Islamic banks in 15 countries between 2010 and 2020, which are hand-collected from the banks’ annual reports. The results indicate that the SSB quality index, SSB Islamic finance professional expertise and SSB competency increase insolvency risk while the SSB members with PhDs reduce it. Meanwhile, SSB size, SSB meetings, SSB gender diversity (SSBG) and SSB members from foreign countries have no significant influence on the insolvency risk. These findings have implications for policymakers and regulators in carving policies and regulations in restraining the SSB from taking excessive risk. They can also guide the Islamic banks' board of directors and shareholders in appointing the SSB members.
Acknowledgment
The authors are grateful to the Bank Indonesia Institute and Bank Indonesia for the honorarium given after the publication
Linking Religiosity to Socio-Entrepreneurship Intention: A Case of Muslim Youth
Full text linkUsing an integrated entrepreneurial model, this study examines social entrepreneurship intention of Muslim youth in Indonesia. In the study, a total of 206 Muslim youths is surveyed and the data are analyzed using the partial least squares structural equation model (PLS-SEM). The findings show that, while religiosity does not have a direct effect on socio-entrepreneurial intention, it increases perceived desirability. We reason that the religiosity of Muslim youth is more on the formation of positive perceptions, which give rise to desires and intentions to be socio-entrepreneurs. Thus, the application of social entrepreneurship among Muslim youth in Indonesia is supported by not only profits but also individual beliefs in creating social value and prospering society
Do Market Timing Incentives Affect the Debt-Equity Choice of Malaysian Shariah-Compliant IPOs?
Full text linkEmpirical and theoretical literature points out that market timing could shape financing decisions and persistently affect capital structure. However, prior studies on market timing do not distinguish between Shariah-compliant and non-compliant firms although Shariah compliance considerations may affect market timing incentives. This paper aims to fill this gap in the literature by investigating whether market timing theory is relevant in the case of Shariah-compliant firms. We consider panel data consisting of 40 Malaysian Shariah-compliant companies that went public during the period from 1 January 2015 to 31 December 2018. We report evidence that managers of Malaysia Shariah-compliant IPOs tend to time the market by issuing equity when they perceive that their shares are overpriced and market conditions are favorable. However, the impact of these market timing on their capital structure quickly disappears. The findings provide useful implications for investors and portfolio managers interested in investing in Shariah-compliant IPOs. They should identify market timers in order to avoid low subsequent returns of equity issuers
Socioeconomic Development in Muslim Countries: Ibn Khaldun’s Development Model-Based Approach
Full text linkThis study constructs a measure of socioeconomic development in Muslim countries based on Ibn Khaldun’s model of development. It proposes a composite index of development based on three dimensions, namely human empowerment, government and institution, and economic growth, and terms it as Ibn Khaldun-based socioeconomic development index (I-SDI). A total of 13 indicators are selected to represent each dimension and are employed for construction of the index using an equal weighted method and additive aggregation approach. In general, we note that many Muslim countries are underperformed., as indicated by the low value of I-SDI. We further find that Muslim countries that perform well in government and institution dimensions tend to experience better socioeconomic development. We believe that the proposed I-SDI is non-redundant and robust and hence can be utilized as an alternative way of measuring the development in Muslim countries. In other words, the Ibn Khaldun’s model of development is exceptionally meaningful in explaining the socio-economic performance of Muslim countries
Environmental, Social, Governance Investing, COVID-19, and Corporate Performance in Muslim Countries
Full text linkWe examine the impact of Environment, Social, and Governance–ESG investing on corporate performance of non-financial firms in Muslim countries during the pandemic. Employing the random effect panel model with 1,546 firm-year observations, we find that the ESG combined score and its pillars have significant influence on corporate performance during the COVID-19 period. Namely, the performance of firms with higher ESG is relatively less affected as compared to the performance of firms with lower ESG. We also note that firms in Malaysia and the United Arab Emirates with high ESG have better operational (financial) performance. Finally, from the sectorial perspective, health care and energy (consumer staples) firms with higher ESG have higher operational (financial) performance during the pandemic.
Acknowledgment
The authors would like to thank Bank Indonesia Institute, Bank Indonesia, for the funding that made this study possible
The Determinants of Digital Banking Adoption among Banks Offering Islamic Banking Services
Full text linkTechnology advances in the financial sector have been a topic of much discussion within the banking industry. It is believed that the adoption of digital banking by banks depends greatly on their characteristics and the market they operate. This study examines the relationship between bank and market characteristics and the adoption of digital banking among banks that offer Islamic banking services in Indonesia. Data are gathered from banks’ annual reports, their first mobile banking app, financial reports, and banking statistics from 2010 to 2022. A panel logistic regression is utilized in the analysis. The results indicate that bank and market characteristics have a meaningful impact on a bank's decision to adopt digital banking. Additionally, it is found that banks are more inclined to adopt digital banking during the COVID-19 pandemic
Optimal Hedge Ratio of Sukuk and Islamic Equity: A Novel Approach
Full text linkThis research applies a novel model to compute a hedge ratio. Specifically, the model modifies volatility forecasts of an exponentially weighted moving average method to account for the fat-tailed distribution of returns. This simpler model aims to overcome the widely-known drawback of the complex GARCH models that a long daily return period is required to ensure the model’s convergence. The data are Islamic exchange-traded funds: SP Funds Dow Jones Global Sukuk ETF, Wahed FTSE USA Shariah ETF, and iShares MSCI EM Islamic UCITS ETF. Sukuk act as a diversifier over the turmoil period since they are positively correlated with Islamic equity and their volatility is less than that of Islamic equity. This work also implements widely-used methods such as Dynamic Equicorrelation-GARCH, GO-GARCH, asymmetric DCC-GARCH, naïve approach, and linear regression. Two forms of data splitting and a rolling-window analysis are carried out to reduce data mining bias. All models generate one-step ahead forecasts of hedge ratios. Applying wavelet-transformed returns and utility analysis incorporating third and fourth moments, the proposed models produce better performance than the competing models. The results remain the same irrespective of different hedging instruments (precious metals) and asset classes
Information Efficiency in the U.S. and Shariah-Compliant Stocks in Malaysia during COVID-19
Full text linkThis study examines the impact of analysts’ forecast of market liquidity and information efficiency in the U.S (developed) and Malaysia (emerging – Shariah-compliant stocks) before and during COVID-19. The results show that the analysts’ forecast is significant to the market liquidity in the pre-COVID period but its influence diminishes during the COVID-19. Moreover, the impact of the analysts’ forecast is significant in the upper quantiles (0.7 and 0.9 quantiles) of the U.S market and in the lower quantiles (0.1 and 0.3 quantiles) of Malaysia's Islamic market. Similarly, the buy-sell recommendations in the U.S market and all variables forecasted are significant before COVID-19. Both markets become inefficient during COVID-19, and analysts’ forecast is no longer correlated to information efficiency. These results inform practitioners and investors to inspect the market conditions and investor's behavior under market stress such as COVID-19, which has disrupted the international financial markets
The Influence of Basel III on Islamic Bank Risk
Full text linkThis paper investigates the impact of bank regulatory capital on Islamic bank risk using bank-level data from 29 countries covering the period from 2004 to 2020. Applying the generalized method of moments technique on dynamic panels, we discover that on average Islamic bank regulatory capital ratios exceed the level required by Basel III. The findings provide evidence in support of the moral hazard hypothesis; that is, there is a negative relationship between capital and risk. They indicate that Islamic banks are better protected against risk when they fulfill Basel III and IFSB regulatory capital requirements. According to our findings, authorities that aim to improve the financial stability of the banking industry should reinforce their policies and oblige banks to adhere to regulatory capital requirements during crises such as Covid-19. Finally, we observe that different risk indicators have diverse correlations with regulatory capital, and that the findings are robust across a variety of estimation methodologies