{"title":"Equity financing and Islamic bank stability: evidence from Malaysia and Indonesia","authors":"Norfaizah Othman, Mariani Abdul-Majid, Aisyah Abdul-Rahman","doi":"10.1108/imefm-03-2022-0106","DOIUrl":null,"url":null,"abstract":"\nPurpose\nThis paper aims to determine the effect of equity financing on bank stability during normal and crisis periods.\n\n\nDesign/methodology/approach\nThis study uses a static panel regression that includes pooled ordinary least square, random effect and fixed effect model to examine the influence of equity financing on bank stability. In estimating bank stability during a financial crisis, the authors predict the occurrence of a crisis using the early warning system (EWS). The authors then used z-score to measure Islamic banks’ stability.\n\n\nFindings\nIslamic banks that offer equity financing structure are more stable compared to Islamic banks without such structure. Islamic banks with medium equity financing have highest stability relative to Islamic banks with high or low equity financing. During crises, the Islamic banks with equity financing structure remain relatively stable compared to other Islamic banks.\n\n\nResearch limitations/implications\nThe sampling coverage could have included a larger number of countries and banks.\n\n\nPractical implications\nThe authorities need to strengthen the banking framework to support the Islamic financial products by encouraging a wider use of risk-sharing instruments. Besides using a debt-like financing structure, Islamic banks should also place emphasis on equity financing in instilling the banking sector stability. In monitoring banks with equity financing, the authorities may need to look into the level of equity financing.\n\n\nSocial implications\nBesides avoiding riba and gharar in financing, equity financing encourages cooperation and participation among society as they share the risks.\n\n\nOriginality/value\nThis paper analyses the effect of equity financing on the Islamic banks stability during normal and crisis periods. This paper further examines the intensity of the equity financing and its influence on bank stability.\n","PeriodicalId":47091,"journal":{"name":"International Journal of Islamic and Middle Eastern Finance and Management","volume":" ","pages":""},"PeriodicalIF":2.8000,"publicationDate":"2023-09-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"International Journal of Islamic and Middle Eastern Finance and Management","FirstCategoryId":"96","ListUrlMain":"https://doi.org/10.1108/imefm-03-2022-0106","RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q2","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
Purpose
This paper aims to determine the effect of equity financing on bank stability during normal and crisis periods.
Design/methodology/approach
This study uses a static panel regression that includes pooled ordinary least square, random effect and fixed effect model to examine the influence of equity financing on bank stability. In estimating bank stability during a financial crisis, the authors predict the occurrence of a crisis using the early warning system (EWS). The authors then used z-score to measure Islamic banks’ stability.
Findings
Islamic banks that offer equity financing structure are more stable compared to Islamic banks without such structure. Islamic banks with medium equity financing have highest stability relative to Islamic banks with high or low equity financing. During crises, the Islamic banks with equity financing structure remain relatively stable compared to other Islamic banks.
Research limitations/implications
The sampling coverage could have included a larger number of countries and banks.
Practical implications
The authorities need to strengthen the banking framework to support the Islamic financial products by encouraging a wider use of risk-sharing instruments. Besides using a debt-like financing structure, Islamic banks should also place emphasis on equity financing in instilling the banking sector stability. In monitoring banks with equity financing, the authorities may need to look into the level of equity financing.
Social implications
Besides avoiding riba and gharar in financing, equity financing encourages cooperation and participation among society as they share the risks.
Originality/value
This paper analyses the effect of equity financing on the Islamic banks stability during normal and crisis periods. This paper further examines the intensity of the equity financing and its influence on bank stability.
期刊介绍:
The International Journal of Islamic and Middle Eastern Finance and Management (IMEFM) publishes quality and in-depth analysis on current issues within Islamic and Middle Eastern finance and management. The journal welcomes strong evidence-based empirical studies and results-focused case studies that share research in product development and clarify best practices. The title is also keen to consider work from emerging authors. IMEFM has just also accepted into Clarivate''s SSCI in 2018, and its IF will be available in summer 2019, with citations dating from 2016. The coverage includes but is not limited to: -Islamic finance: Fundamentals, trends and opportunities in Islamic Finance, Islamic banking and financial markets, Risk management, Corporate finance, Investment strategy, Islamic social finance, Financial planning, Housing finance, Legal and regulatory issues, -Islamic management: Corporate governance, Customer relationship management and service quality, Business ethics and corporate social responsibility, Management styles and strategies in Shariah environments, Labour and welfare economics, Political economy. The journal is the only title aiming to give an interdisciplinary and holistic view on Islamic finance and business management practices in order to inform these two intertwined communities.