Regulation,ownership and bank performance in the MENA region: Evidence for Islamic and conventional banks

This paper investigates the impact of regulation and ownership on the performance of banks in 19 countries in the Middle East and North Africa (MENA) region. We test the hypothesis that the effect of regulation on bank profitability depends on the type of ownership structure. The public and private views of bank regulation are also tested along with the interaction of bank regulation and ownership. We find regulation measures to have a strong influence on bank profitability, whereas ownership structure seems to play a limited role in explaining bank performance in the MENA region. The results support the private view of bank regulation and suggest that capital requirements and private monitoring when interacted with ownership concentration exert a strong influence on bank profitability. When the analysis is done separately for conventional and Islamic banks, we find that the impact of bank regulations though strongly significant, does not depend on the type of ownership structure prevailing in conventional banks. In contrast, regulatory effects seem to be important drivers of profitability of Islamic banks. Therefore, it is very important for policy makers in these countries not to treat the two types of banks identically when setting up and implementing bank regulations especially during the COVID-19 pandemic.     

Investor protection and dividend policy: The case of Islamic and conventional banks

This study examines the dividend policy behavior of Islamic and conventional banks operating in Arab markets. These banks operate in an environment of Sharia law and low levels of investor protection. Our results support the substitution agency model of dividends for Islamic banks, and Islamic banks use the dividend policy as a substitute mechanism for alleviating relatively more significant agency problems and higher risks of expropriation by insiders. In these markets, conventional banks operate in a more competitive environment and experience relatively less significant agency problems. In contrast to Islamic banks, conventional banks follow the outcome agency model of dividends.     

Measuring volatility persistence for conventional and Islamic banks: An FI-EGARCH approach

This paper studies the volatility dynamics of conventional and Islamic banks from the Gulf Cooperation Council (G.C.C) countries during calm and crisis periods, providing a dual comparison in time and space. In particular, it proposes an empirical measure of volatility persistence using the FIEGARCH (Fractionally Integrated Exponential Generalized Auto-Regressive Conditional Heteroscedasticity) model. This specification is useful for reproducing further asymmetry in volatility dynamics and provides a direct measure of long-term volatility dependence. Our findings point to three interesting findings. First, volatility exhibits asymmetry as bad news has a significantly higher impact on volatility than positive news. Second, bad news affects the volatility of conventional banks more strongly than that of Islamic banks. Third, it seems that following a shock, volatility is more persistent in conventional banks than in Islamic Banks. Accordingly, Islamic banks are more resilient than conventional banks, but the degree of resilience is somewhat heterogeneous and sample dependent. Thus, while this may appear to suggest that we could regulate the conventional bank system using the industry rules of Islamic banks, it is worth noting that Islamic banks in Saudi Arabia tend to provide the most resilient Islamic Bank benchmark model.     

The effects of business- and non-business-targeting terrorism on FDI to the MENA region: The moderating role of political regime

This study investigates the effects of terrorist attacks on foreign investment by stressing the importance of both business- and non-business-targeting terrorism in the host country. Building on North’s strand of institutional theory, we argue that both forms of terrorism represent exogenous risks likely to generate high levels of non-ergodic uncertainty for MNEs and subsequently deter foreign investors. Further, we hypothesize that these effects may be moderated by host-country political regime type, which serves as a gauge for a favorable investment environment for MNEs operating in institutionally fragile markets. Using panel data on fifteen MENA countries over the period 2001–2018, we find empirical support for our hypotheses whereby hybrid political regimes, namely anocracies, strengthen the negative effects of both business- and non-business-targeting terrorism on FDI. Our work contributes to the research on FDI and exogenous risks by offering a more fine-grained conceptualization of terrorism, as well as by highlighting the moderating role of host-country hybrid regimes.     

Private equity,Islamic finance,and sovereign wealth funds in the MENA region

The Middle East and North Africa region has experienced a significant amount of activity in the past few years, despite the worldwide economic problems caused by the subprime crisis. A strong influx of petrodollar reserves, sustainable economic growth, limited reliance on leverage, and limited exposure to the global credit markets have kept the region relatively outside the economic mishaps overwhelming a number of economies, especially in the West. Shariah‐compliant, Islamic private equity funds and the use of sovereign wealth funds as sources of private equity in the region are two important evolutionary developments to watch in the next few years. © 2008 Wiley Periodicals, Inc.     

Capital buffer and credit‐risk adjustments in Islamic and conventional banks

The main purpose of this article is to empirically investigate the interactions between changes in capital buffer and changes in credit risk, using panel data of Islamic and conventional banks located in the Middle East and North Africa (MENA) region over the period 1999–2016. A negative two‐way relationship between the changes in capital buffer and the changes in credit risk is found for the two types of banks, that is, banks tend to decrease their capital buffers in response to an increase in risk exposure and limit their risky activities in response to an increase in their capital buffers. Dividing our period of study into three subperiods to assess the effect of the last financial crisis 2007–08 on the adjustment process, we point out the negative bidirectional relationship between the changes in capital buffer and the changes in credit risk of the two types of banks is present for the three subperiods except the case of conventional banks during the precrisis period. Moreover, we provide evidence that Islamic banks adjust their capital buffer in response to the changes in credit risk regardless of the existence or not of a deposit insurance scheme. In contrast, the negative two‐way relationship between the changes in capital buffer and the changes in credit risk in conventional banks is found only in countries without deposit insurance schemes.     

Underpinning the benefits of green banking: A comparative study between Islamic and conventional banks in Bangladesh

This study aims to compare environmental motives and performance of conventional and Islamic banks in Bangladesh. Green compliance index was developed based on the Bangladesh Bank (the central bank of Bangladesh) guidelines whereas information regarding governance variables is collected from the annual reports of 9 Islamic and 31 conventional banks. Results show Islamic banks are more environmentally friendly compared to their conventional counterparts. Board size is negatively related to green compliance whereas board independence and auditor's type do not have any significant influence on green compliance for both clusters of banks. Compliance with green banking policies enhances the reputation for Islamic banks and accountability and profitability for conventional banks. Results of this study provide useful information for regulatory authorities to formulate policies that are conducive to enhance bank's environmental performance.     

Islamic financing and bank risks: The case of Malaysia

We examine whether Islamic financing can explain three important bank risks in a country with a dual banking system: credit risk, interest‐rate risk, and liquidity risk. Using Malaysian data, we find that commercial banks with Islamic financing have significantly lower credit and liquidity risks but significantly higher interest‐rate risk than banks without Islamic financing. There is also evidence that bank size is significantly related to credit risk; the proportion of loan sales to total liabilities and bank size are significant determinants of interest‐rate risk; and off‐balance‐sheet financing, the extent of securitization, loan volatility, bank capital, and bank size are statistically significantly related to liquidity risk. © 2005 Wiley Periodicals, Inc.     

Bank lending,deposits and risk-taking in times of crisis: A panel analysis of Islamic and conventional banks

In this study, we conduct a panel analysis of Islamic and conventional banks to ascertain whether Islamic banks are able to sustain financing supply and whether its growth is higher than conventional bank lending growth in times of stress. For concreteness, we also assess whether the sustained financing supply of Islamic banks is justified by a concomitant increase in Islamic deposit growth and is not linked to excessive risk taking. Utilizing a panel sample of 25 Islamic banks and 114 conventional banks from 10 dual-banking countries, we observe sustained financing supply by Islamic banks but significant reduction in the lending growth by conventional banks during the crisis period. The results further suggest that the financing growth of Islamic banks is higher than the lending growth of conventional banks during the crisis period. However, we find no clear evidence that the deposit growth of Islamic banks behaves differently during the period. Finally, there is no indication to suggest that Islamic banks exhibit excessive risk taking in times of stress. Our results contribute to the evidence supporting the contributive role of the Islamic banking system to financial and economic stability.     

Institutions and corporate capital structure in the MENA region

This paper provides novel evidence on firm- and country-level determinants of firm capital structure decisions in the MENA region. Using a sample of 444 listed firms from ten countries, over the 2003–2011 period, we find that MENA firms have target leverage ratios towards which they adjust over time. Yet, the speed of adjustment varies from one country to another. Our findings also suggest that some firm-level factors are associated with leverage consistent with the trade-off and pecking order theories of capital structure. We further find robust evidence that better institutional quality leads firms to use more debt.     

Political risk and the cost of capital in the MENA region

We examine the impact of political risk in the MENA region on the cost at which firms can raise capital. Using the implied cost of equity as a measure of the cost of capital and ICRG's political risk rating as a proxy for political risk, we find that political risk results in a higher cost of capital. Economically, our results suggest that a one standard deviation increase in the political risk index is associated with a 450 basis points increase in the cost of equity capital of MENA firms. Our results are consistent across a battery of robustness checks. Our findings have important policy implications that are relevant to the MENA region and beyond.     

Leadership and culture in the MENA region: An analysis of the GLOBE project

This paper focuses on leadership and culture in the Middle East and North Africa (MENA) region, using data from the GLOBE Project. The results show that cultural practices are manifested by higher in-group collectivism and power distance, whilst cultural values are represented by a common desire for higher performance and future orientation. Examination of the leadership prototypes shows a preference for honest, just and inspirational leadership that encourages loyalty. Further examination of the leadership prototype using cluster analysis produced four sub-clusters of leadership profiles. These revealed the similarities and differences among the MENA region's leadership preferences. Opportunities for further research and implications for managers were discussed.     

The moderating effect of interdependence on contracts in achieving equity versus efficiency in interfirm relationships

By associating the functions of contracts as safeguarding with equity or coordination with efficiency, this study explores the moderating effects of interdependence, operationalized as joint dependence and dependence asymmetry, on the relative salience and effectiveness of contracts in achieving equity versus efficiency in interfirm relationships. Analyzing the data from a sample of 355 retailers, the study finds that a higher contract complexity generates (1) steady gains in equity and increasing gains in efficiency as joint dependence strengthens and dependence asymmetry remains constant, suggesting a growing salience of the coordination function; and (2) increasing gains in equity and steady gains in efficiency as dependence asymmetry enlarges and joint dependence remains constant, reflecting a growing salience of the safeguarding function. By showing how interdependence moderates the relative effectiveness of contracts in achieving equity versus efficiency, the study enriches the literature on the complex and contingent roles of contracts in governing interfirm relationships.     

The role of customer satisfaction in enhancing customer loyalty in Malaysian Islamic banks

This study examines the role of customer satisfaction in enhancing the loyalty of Muslim and non-Muslim customers in the Malaysian Islamic banking industry. Respondents are the customers (Muslim and non-Muslim customers) visiting the bank counters and have an account with Islamic banks. A total of 660 questionnaires were distributed, and 440 were returned. The results indicate that customer satisfaction has a statistically significant positive effect on customer loyalty and intentions to switch for Muslim and non-Muslim customers. However, there were significant differences in the effects of customer satisfaction on customer loyalty and intention to switch for Muslim and non-Muslim customers. The effect of customer satisfaction on customer loyalty and intention to switch is greater for the non-Muslim than the Muslim customers.     

The effect of a similarity versus dissimilarity focus in positioning strategy: The moderating role of consumer familiarity and product category

Results of three studies show that the effectiveness of positioning strategies based on similarity and dissimilarity vis‐à‐vis other brands or with respect to the product category as a whole is moderated by the degree of familiarity of the consumer with the objects of comparison (Study 1) and by the degree of imageability and concreteness of the memory representation of the product category (Studies 2 and 3). Perceptual judgments appear to be more responsive to similarity and dissimilarity positioning either when consumers are more familiar or when product categories allow consumers to form clear, concrete memory representations. Study 3 shows that such effects are due to a shift in the relative proportion of common and distinctive features made salient under similarity and dissimilarity instructions. Methodological and practical implications are discussed. © 1999 John Wiley & Sons, Inc.     

Systemic risk,Islamic banks,and the COVID-19 pandemic: An empirical investigation

While operating side-by-side with conventional banks, in a dual-banking system, the systemic risk profile of Islamic banks can be different due to their unique business model. The objective of this study is to understand the evolution of systemic risk in dual-banking systems and determine whether there are any differences in the systemic risk profiles of conventional and Islamic banks during the COVID-19 pandemic. This study also identifies the determinants of systemic importance (measured using spillover indices) of financial institutions. The sample includes ten countries where the Islamic banking sector is considered systemically important and covers the period from November 2015 to November 2020. The empirical results indicate a significant increase in systemic risk, in the sample countries, during the first half which is followed by a recovery in the second half of 2020. Comparative analysis shows that Islamic banks have similar systemic vulnerabilities to systematic and idiosyncratic factors during the exogenously induced real economic shock of the COVID-19. However, Islamic banks pose significantly less spillover to others relative to conventional banks while earning abnormal returns. The results are robust to the inclusion of macroeconomic factors and alternate estimation methodologies. The findings of this study provide valuable insights for the regulators of dual-banking systems.     

The effect of mixed versus blocked sequencing of promotion and prevention features on brand evaluation: The moderating role of regulatory focus

We investigate if presenting a brand's promotion and prevention features in homogenous blocks (e.g., two promotion features followed by two prevention features — a toothpaste that freshens breath, whitens teeth, stops plaque buildup and prevents cavities) as opposed to alternating their presentation order (a toothpaste that freshens breath, stops plaque buildup, whitens teeth, and prevents cavities) affects brand attitude. We find that alternating feature presentation improves brand evaluation among promotion-focused, but not prevention-focused, consumers. In mixed presentations, since each feature physically contrasts with those near it (e.g., promotion features bracketing a prevention feature), the resulting heightened distinctiveness increases the perceived variety of a brand's benefits and fits better with the advancement goals of promotion-focused consumers. We report two studies that support our predictions.     

In search of spatial interdependence of US outbound FDI in the MENA region

The paper investigates the spatial interdependence of US MNE investments in the MENA region. Given the variations in resource endowments, governance structures and degree of infrastructure availability in MENA countries, one would expect these variables to affect an MNE 's choice of FDI location. We do find that domestic non‐spatial factors such as own country inflation and governance measured by bureaucratic quality as well as infrastructure affect a host country's inward FDI . We also found that only one measure of natural resource endowment; that is, oil and gas exports were instrumental in attracting FDI . This non‐spatial result is generally robust and invariant to the two methodologies employed in this study, that is the spatially autoregressive (SAR ) model and the spatial Durbin model (SDM ). We found that neighbouring countries’ infrastructure availability measured either by “electricity used” or “energy used” affected FDI inflows in a host country. However, this spatial impact was found only in the SDM model. The spatial effects of neighbouring countries’ economic and political conditions and resource endowments were, however, not observed on a host country's inward FDI . The insignificance of both the surrounding market potential and the spatially weighted FDI suggests a purely horizontal motive of MNE investments in the MENA region.     

Learning from exporting: The moderating effect of technological capabilities

There is evidence that exporters are more productive than non-exporters. Scholars argue that exporters may have access to knowledge spillovers in foreign markets and use this knowledge to become more efficient. However, we know little about whether learning from exporting is affected by firms’ heterogeneous resource endowments and, particularly, about the specific firm characteristics that matter the most in this respect. Utilizing a sample of 1534 Spanish manufacturing firms from 1990 to 2002, we empirically analyze whether a firm's technological capabilities (proxied by its relative R&D expenditures) affect its ability to learn from the interaction with foreign agents. We find that firm productivity increases after exporting for all firms. However, ex post productivity improvements are larger for the more technologically advanced firms than they are for their less technologically advanced counterparts. Our results show that some firms stand to benefit more from exporting than others and hint at the importance of absorptive capacity for knowledge acquisition overseas.     

Multimarket contact and firm performance: The moderating effect of Confucian culture

This paper examines the effect of Confucian cultural value on the relationship between multimarket contact and two dimensions of firm performance, i.e., firms’ innovation and profitability. It is hypothesized that firms with a high level of multimarket contact are more likely to show mutual forbearance towards their competitors, which in turn influences their innovative behavior and financial performance. Taking into account the possible moderating effects of Confucian cultural value, we also hypothesize that the effect of multimarket contact is more pronounced among firms from the Confucian culture. In other words, it is argued that firms from the Confucian culture are more likely to innovate and obtain better financial performance. Empirical tests were conducted after the hypotheses, and the findings support the arguments on multimarket contacts and mutual forbearance hypotheses. Through facilitating tacit collusion, multimarket contact does seem to help create superior economic performance.