Modelling the effect of the geographical environment on Islamic banking performance: A panel quantile regression analysis |
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| Institution: | 1. University of Evry, 2 rue Facteur Cheval, Evry 91025, France;2. IPAG Business School, IPAG LAB, France;3. EDC Paris Business School, France;4. INSEEC Business School, France;5. ESSCA School of Management, France;1. Division of Monetary Affairs, Federal Reserve Board, United States;2. Division of Banking Supervision & Regulation, Federal Reserve Board, United States;1. Business School, Hunan University, Changsha 410082, PR China;2. Center for Resource and Environmental Management, Hunan University, Changsha 410082, PR China;3. Hologic Corporation, 2585 Augustine Dr, Santa Clara, CA 95054, USA;1. NECE-UBI and, Management and Economics Department, University of Beira Interior, Covilhã, Portugal;2. NECE-UBI, CeBER and Faculty of Economics, University of Coimbra, Coimbra, Portugal;1. Climate Change and Energy Economics Study Center, Economics and Management School, Wuhan University, Wuhan 430000, PR China;2. Center of Hubei Cooperative Innovation for Emissions Trading System, School of Low Carbon Economics, Hubei University of Economics, China;3. Department of Public Policy, City University of Hong Kong, Kowloon, Hong Kong; Shenzhen Research Institute, City University of Hong Kong, Shenzhen, PR China;4. Institute for International Studies, Wuhan University, Wuhan 430072, PR China |
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| Abstract: | While studies have focused on Islamic banking, research on the effect of the geographical environment on Islamic banks is scarce. We investigate this issue by using daily data on 12 Islamic banks in four regions (Africa, Asia, Europe, and the United States) from July 2007 to April 2016. We apply different methodological approaches (principal component analysis, panel data tests, and quantile regression). First, the principal component analysis shows that the performance of Islamic banks varies among regions. Second, the linear panel regression highlights that the geographical environment positively and significantly affects Islamic banking, suggesting the importance of externality effects. Finally, the environmental effect seems to vary with quantiles (positive effect for the lowest quantile versus negative effect for the highest quantile). This quantile specification points to nonlinearity in the environment–Islamic bank performance relationship, reflecting a time-varying discipline imposed by the Sharia board (Islamic Law). This finding helps better explain the main difference between Islamic banks in the East (Africa and Asia) and those in the West (Europe and the United States) and also enables investors to adjust their portfolio choices when considering the products of Islamic banks according to regional specificities. |
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| Keywords: | Islamic banking Geographical environment Panel data Quantile regression Nonlinearity |
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