Skip to content

The impact of efficiency on Islamic banks’ performance: a cross-country study

Research output: Contribution to journalArticle

This paper contributes to Islamic finance literature by offering a large-scale evidence on the impact of efficiency on the performance of Islamic banks all over the world. Our initial sample includes all Islamic banks around the world. Using a sample of 151 Islamic Banks with financial years ending within the period January 2013 and December 2013, we examine, controlling for Bank-specific characteristics and country-specific characteristics, whether high efficiency leads to more profitability in Islamic Banks. We define higher efficiency as the lower Cost-to-income ratio. We find that higher levels of Islamic banks’ efficiency banks (i.e. lower Cost-to-income ratio) are positively associated with banks’ performance (measured by return on assets). In addition, our analysis shows that there is a positive association between risk-based capital adequacy and the existence of Sharia auditing department and the performance of Islamic banks. Finally, the analysis shows that three Hofstede culture dimensions (i.e. power distance, individualism; uncertainty avoidance) and the nature of the banking system positively influence the performance of the Islamic banks.
Original languageEnglish
JournalInternational Journal of Excellence in Islamic Banking and Finance
Volume6
StateAccepted for publication - 30 Dec 2017

Related information

Relations Get citation (various referencing formats)

ID: 8450334