Re-Examining the Determinants of Islamic Bank Performance: New Evidence from Dynamic GMM, Quantile Regression, and Wavelet Coherence Approaches

ABSTRACT

This study is the first attempt to conduct a comparative analysis of the internal and external determinants of the Islamic banks’ profitability in the GCC region applying dynamic GMM, quantile regression, and wavelet coherence approaches. The dynamic GMM tends to indicate that equity financing and operating efficiency and macroeconomic variables such as money supply, and inflation are significantly related to Islamic banks’ performance. The bank-specific variables such as credit risk, equity ratio, and cost-efficiency ratios are not significant at different percentiles. ROA is driven by credit risk, equity ratio, and cost-efficiency ratios (as evidenced in wavelet coherence analysis).

KEY WORDS:

• bank-specific and macroeconomic determinants
• financial performance
• GMM
• quantile regression
• wavelet coherence

Acknowledgments

We are deeply obliged to the editor (Prof. Ali Kutan) and the reviewer for their time and learned comments, which enhanced the quality of the article immensely.