Cost of capital of Islamic banking institutions: an empirical study of a special case
Purpose – The paper's purpose is to ascertain how computing the cost of capital for Islamic banks may differ from the case of conventional ones. Design/methodology/approach – The published accounts of four major Islamic banks were analysed, so as to test the set hypotheses. Also, two surveys were undertaken on this issue, one for banking officials; the other for depositors at a major Islamic bank. Findings – For Islamic banks, it became clear that deposit accounts were not a liability, as these fell within the definition of “profit-and-loss sharing” instruments. In fact, a high-positive correlation coefficient was apparent between an Islamic bank's market value and the size of its deposits. Also, the market value of Islamic banks was clearly independent of its cost of capital. Research limitations/implications – The two surveys expressed the views of respondents, and these could be subjective. Also, the core sample studied in depth was limited to four banks, and this could be widened in subsequent research. Practical implications – Risk associated with deposit-taking needs to be looked at differently in the case of Islamic banking institutions. Also, return provided to shareholders came out higher than for depositors. Originality/value – The paper sheds new light on how the cost of capital may be computed in the case of Islamic banks. Also, the relationship between depositors and shareholders is investigated, though additional research is required on this aspect.
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.
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.
Volume (Year): 1 (2008)
Issue (Month): 1 (April)
|Contact details of provider:|| Web page: http://www.emeraldinsight.com|
|Order Information:|| Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK|
Web: http://emeraldgrouppublishing.com/products/journals/journals.htm?id=imefm Email:
When requesting a correction, please mention this item's handle: RePEc:eme:imefpp:v:1:y:2008:i:1:p:10-19. 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: (Louise Lister)
If references are entirely missing, you can add them using this form.