IDEAS home Printed from
MyIDEAS: Login to save this article or follow this journal

Using accounting ratios to distinguish between Islamic and conventional banks in the GCC region

  • Olson, Dennis
  • Zoubi, Taisier A.

This study determines whether it is possible to distinguish between conventional and Islamic banks in the Gulf Cooperation Council (GCC) region on the basis of financial characteristics alone. Islamic banks operate under different principles, such as risk sharing and the prohibition of interest, yet both types of banks face similar competitive conditions. The combination of effects makes it unclear whether financial ratios will differ significantly between the two categories of banks. We input 26 financial ratios into logit, neural network, and k-means nearest neighbor classification models to determine whether researchers or regulators could use these ratios to distinguish between the two types of banks. Although the means of several ratios are similar between the two categories of banks, non-linear classification techniques (k-means nearest neighbors and neural networks) are able to correctly distinguish Islamic from conventional banks in out-of-sample tests at about a 92% success rate.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal The International Journal of Accounting.

Volume (Year): 43 (2008)
Issue (Month): 1 (March)
Pages: 45-65

in new window

Handle: RePEc:eee:accoun:v:43:y:2008:i:1:p:45-65
Contact details of provider: Web page:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Knez, Peter J & Ready, Mark J, 1996. "Estimating the Profits from Trading Strategies," Review of Financial Studies, Society for Financial Studies, vol. 9(4), pages 1121-63.
  2. Pamela K. Coats & L. Franklin Fant, 1993. "Recognizing Financial Distress Patterns Using a Neural Network Tool," Financial Management, Financial Management Association, vol. 22(3), Fall.
  3. Grais, Wafik & Pellegrini, Matteo, 2006. "Corporate governance and Shariah compliance in institutions offering Islamic financial services," Policy Research Working Paper Series 4054, The World Bank.
  4. Aggarwal, Rajesh K & Yousef, Tarik, 2000. "Islamic Banks and Investment Financing," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(1), pages 93-120, February.
  5. Pesaran, M.H. & Timmermann, A., 1990. "A Simple Non-Parametric Test Of Predictive Performance," Papers 29, California Los Angeles - Applied Econometrics.
  6. Olson, Dennis & Mossman, C, 2001. "Cross-Correlations and Predictability of Stock Returns," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 20(2), pages 145-60, March.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:accoun:v:43:y:2008:i:1:p:45-65. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.