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Financing structure and insolvency risk exposure of Islamic banks

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  • Aisyah Rahman

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Abstract

This study analyzes the impact of financing structure on Islamic banks’ insolvency risk exposure. By analyzing four models, we find that an increase in real estate financing decreases insolvency risk; however, an increasing concentration of financing structure increases insolvency risk. We discover that increasing the stability of the financing structure reduces risk in the short term, but not in the medium term. Interestingly, our findings show that the level of insolvency risk exposure during the 1997 Asian financial crisis was lower than it was for the overall period, whereas it is higher than the overall average in the ongoing global economic crisis. Thus, regulatory bodies, policymakers, and market players in the Islamic banking industry should take appropriate action to in manage the insolvency risk of Islamic banks. Copyright Swiss Society for Financial Market Research 2010

Suggested Citation

  • Aisyah Rahman, 2010. "Financing structure and insolvency risk exposure of Islamic banks," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 24(4), pages 419-440, December.
  • Handle: RePEc:kap:fmktpm:v:24:y:2010:i:4:p:419-440
    DOI: 10.1007/s11408-010-0142-x
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    File URL: http://hdl.handle.net/10.1007/s11408-010-0142-x
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    References listed on IDEAS

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    Cited by:

    1. repec:ipg:wpaper:2013-035 is not listed on IDEAS
    2. repec:eee:finsta:v:34:y:2018:i:c:p:12-43 is not listed on IDEAS
    3. Ajmi, Ahdi Noomen & Hammoudeh, Shawkat & Nguyen, Duc Khuong & Sarafrazi, Soodabeh, 2014. "How strong are the causal relationships between Islamic stock markets and conventional financial systems? Evidence from linear and nonlinear tests," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 28(C), pages 213-227.
    4. repec:ipg:wpaper:35 is not listed on IDEAS

    More about this item

    Keywords

    Insolvency risk; Banking; Financing structure; E5; G21; G28;

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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