IDEAS home Printed from https://ideas.repec.org/a/ris/isecst/0027.html
   My bibliography  Save this article

The Effect of Market Power on Stability and Performance of Islamic and Conventional Banks

Author

Listed:
  • MIRZAEI, ALI

    () (Brunel University London)

Abstract

Bank-level panel data are used to test the effects on risk and returns, of market power, banking and bank-environment activities with respect to a total of 175 Islamic and conventional banks in 12 Middle Eastern countries. By incorporating the traditional SCP and the RMP hypotheses, I assess the relatively high bank returns in Islamic banking system. The results indicate that Islamic banking systems are generally biased toward the RMP hypothesis, but there is evidence that supports the traditional SCP paradigm in conventional banks. I find that interest rate spreads appear to present conventional banks with a trade-off between risk and returns. Off-balancesheet activities increase bank profitability and stability for both markets. Furthermore, most of other bank-specific and macroeconomic variables such as capital adequacy, liquidity and cost efficiency are significant, although their impact and relation with profits and stability is not always the same for Islamic and conventional banks. Finally, in the extended dynamic model, the results show that profitability persists strongly, suggesting that a departure from a perfectly competitive market structure may be very substantial.

Suggested Citation

  • Mirzaei, Ali, 2011. "The Effect of Market Power on Stability and Performance of Islamic and Conventional Banks," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 18, pages 51-89.
  • Handle: RePEc:ris:isecst:0027
    as

    Download full text from publisher

    File URL: http://www.irti.org/English/Research/Documents/IES/055.pdf
    File Function: Full text
    Download Restriction: no

    File URL: http://www.isdb.org/irj/go/km/docs/documents/IDBDevelopments/Internet/English/IRTI/CM/downloads/IES_Articles/Vol_18-1_Effect_of_Market_Power_Stability_Ali_Mirzaei.pdf
    File Function: Full text
    Download Restriction: no

    References listed on IDEAS

    as
    1. Ahmed, Habib & Chapra, Mohammad Umar, 2002. "Corporate Governance in Islamic Financial Institution (Occasional Paper)," Occasional Papers 93, The Islamic Research and Teaching Institute (IRTI).
    2. Ahmad, Ausaf, 1993. "Contemporary Practices of Islamic Financing Techniques," Occasional Papers 25, The Islamic Research and Teaching Institute (IRTI).
    3. Khan, Tariqullah & Chapra, Mohammad Umar, 2000. "Regulations and Supervision of Islamic Banks (Occasional Papers)," Occasional Papers 85, The Islamic Research and Teaching Institute (IRTI).
    4. Anthony M. Santomero, 1997. "Commercial Bank Risk Management: An Analysis of the Process," Center for Financial Institutions Working Papers 95-11, Wharton School Center for Financial Institutions, University of Pennsylvania.
    5. Khan, Tariqullah & Ahmed, Habib, 2001. "Risk Management: An Analysis of Issues in Islamic Financial Industry (Occasional Papers)," Occasional Papers 91, The Islamic Research and Teaching Institute (IRTI).
    6. Allen, Franklin & Santomero, Anthony M., 1997. "The theory of financial intermediation," Journal of Banking & Finance, Elsevier, vol. 21(11-12), pages 1461-1485, December.
    7. Habib Ahmed & Tariqullah Khan, 2007. "Risk Management in Islamic Banking," Chapters,in: Handbook of Islamic Banking, chapter 10 Edward Elgar Publishing.
    8. Anthony Santomero, 1997. "Commercial Bank Risk Management: An Analysis of the Process," Journal of Financial Services Research, Springer;Western Finance Association, vol. 12(2), pages 83-115, October.
    9. Ahmed, Habib, 2011. "Risk Management Assessment Systems: An Application to Islamic Banks," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 19, pages 63-86.
    10. René M. Stulz, 1996. "Rethinking Risk Management," Journal of Applied Corporate Finance, Morgan Stanley, vol. 9(3), pages 8-25.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ris:isecst:0027. 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: (IRTI Staff) or (). General contact details of provider: http://edirc.repec.org/data/irisbsa.html .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.