Equity-based financing and risk in Islamic banks: A cross-country analysis

Figures & data

Table 1. Variable descriptive analysis

Variable	Full Samples				Large IBs Subsample		Small IBs Subsample		T-Statistic
	Mean	Std. Dev.	Min.	Max.	Mean	Std. Dev.	Mean	Std. Dev.
NPF	5.777	9.922	0.000	76.589	2.958	4.860	6.911	11.143	5.035***
ROAA	0.452	3.259	−31.142	28.486	1.362	1.504	0.081	3.683	−3.937***
ZSCORE	3.197	1.516	−1.240	6.641	3.586	1.446	3.033	1.516	−2.879***
EBF	20.296	12.024	0.000	66.576	17.242	12.839	14.058	11.427	2.128**
LOAN	54.202	19.962	1.065	99.545	63.552	10.304	50.393	21.630	−7.739***
DEPOSIT	60.296	28.043	0.011	158.658	70.218	18.376	56.235	30.239	−6.681***
BOD	0.451	0.219	0.000	1.000	0.475	0.204	0.441	0.224	−1.921*
SSB	0.546	0.221	0.000	1.000	0.461	0.190	0.580	0.223	4.622***
CAR	21.886	17.231	−73.330	97.070	17.223	4.713	21.886	17.231	2.810***
DIV_INCOME	24.834	23.183	−6.871	108.333	21.859	26.746	24.834	23.183	2.948***
SIZE	14.488	1.936	7.528	18.444	16.495	0.593	13.666	1.677	−27.026***
MUSLIM	69.989	26.690	1.059	99.800	74.588	13.631	68.104	30.278	−3.837***
GDP	3.762	3.243	−17.005	19.592	3.636	3.932	3.810	2.944	−0.084
PUBLIC	0.435	0.496	0.000	1.000	0.588	0.493	0.378	0.485	−3.837***

***, **, * significant at 1%, 5%, and 10%, respectively.

Table 2. Matrix correlation

		1	2	3	4	5	6	7	8	9	10	11
EBF	1	1
LOAN	2	−0.054	1
DEPOSIT	3	0.089	0.250	1
BOD	4	−0.054	−0.012	0.217	1
SSB	5	0.003	−0.111	−0.164	0.008	1
CAR	6	−0.020	−0.039	−0.384	−0.004	0.056	1
DIV_INCOME	7	0.223	−0.180	0.012	−0.055	0.050	0.037	1
SIZE	8	−0.037	0.244	0.430	0.030	−0.333	−0.143	0.031	1
MUSLIM	9	0.251	0.106	0.349	0.212	0.101	−0.027	0.076	0.005	1
GDP	10	−0.045	0.123	0.049	−0.050	0.036	−0.001	0.033	0.029	−0.072	1
PUBLIC	11	0.200	−0.058	0.202	0.310	0.193	−0.248	−0.020	0.067	0.396	−0.082	1

Table 3. Regression analysis test

	NPF (Model 1)		ROAA (Model 2)		Z-SCORE (Model 3)
	Coef.	Robust Std. Err.	Coef.	Robust Std. Err.	Coef.	Robust Std. Err.
EBF	0.003	0.001***	−0.002	0.003	−0.001	0.002
BOD	−0.128	0.297	−0.314	1.189	0.113	0.239
SSB	0.579	0.560	−2.058	1.917	−0.005	0.371
LOAN	0.000	0.006	0.007	0.009	0.002	0.003
DEPOSIT	0.003	0.005	0.003	0.013	−0.002	0.005
CAR	−0.019	0.008**	0.090***	0.025	0.013***	0.004
DIV_INCOME	−0.058	0.060	0.072	0.193	−0.009	0.056
SIZE	0.009	0.117	1.324**	0.576	0.177**	0.096
MUSLIM	0.003	0.006	−0.001	0.013	0.002	0.006
GDP	−0.018	0.021	0.047	0.032	0.025	0.019
PUBLIC	−0.249	0.413	-	-	0.296	0.323
_cons	−0.249	0.413	−20.331**	8.660	0.094	1.492
Breusch & Pagan LM Test	0.000		0.000		0.000
VIF	1.620		1.290		1.290
Wooldridge test	0.000		0.052		0.160
Modified Wald test	0.000		0.000		0.000
Hausman (P-Value)	0.086		0.001		0.512
R-Square	0.064		0.140		0.047
Prob > F	0. 030		0.000		0.031

***, **, * significant at 1%, 5%, and 10%, respectively. This study uses RE regression methods as the analytical method for Models 1 and 3 and FE regression methods for Model 2.

Table 4. Regression analysis test

	PANEL A (Large IBs Subsample)						PANEL B (Small IBs Subsample)
	NPF (Model 4)		ROAA (Model 5)		Z-Score (Model 6)		NPF (Model 7)		ROAA (Model 8)		Z-SCORE (Model 9)
	Coef.	Robust Std. Err.	Coef.	Robust Std. Err.	Coef.	Robust Std. Err.	Coef.	Robust Std. Err.	Coef.	Robust Std. Err.	Coef.	Robust Std. Err.
EBF	0.003*	0.002	−0.161***	0.049	0.053	0.045	0.003	0.002	−0.003	0.006	−0.075***	0.023
LOAN	−0.011	0.015	0.034*	0.017	0.025	0.021	0.001	0.006	0.006	0.009	−0.002	0.003
DEPOSIT	−0.007*	0.004	0.006	0.006	0.000	0.011	0.005	0.006	0.006	0.016	0.001	0.004
BOD	−0.181	0.414	1.125**	0.562	−0.796	0.749	−0.186	0.390	−0.206	1.714	0.108	0.266
SSB	0.172	0.604	−1.580*	0.899	−1.666	1.298	0.850	0.763	−2.866	2.594	0.796*	0.433
CAR	−0.055**	0.027	0.122***	0.041	0.038	0.044	−0.018**	0.008	0.094***	0.025	0.016***	0.004
DIV_INCOME	−0.078	0.062	−0.015	0.044	0.150	0.113	−0.026	0.089	−0.094	0.245	−0.075	0.066
SIZE	−0.102	0.357	−0.282	0.294	0.944**	0.391	0.039	0.158	1.424**	0.618	0.310***	0.100
MUSLIM	0.005	0.010	0.031***	0.008	−0.020	0.016	0.002	0.008	−0.005	0.030	0.004	0.005
GDP	−0.031	0.020	0.044*	0.024	0.010*	0.035	−0.004	0.039	0.061	0.062	0.019	0.013
PUBLIC	−0.403	0.574	−0.746***	0.268	0.859	0.553	−0.033	0.558	-	-	0.578	0.397
_cons	4.489	5.232	0.284	4.516	−12.268	6.430	−0.102	2.320	−20.235**	9.391	−2.311*	1.379
Breusch & Pagan LM Test	0.000		0.000		0.000		0.000		0.000		0.000
VIF	2.160		2.22		2.35		1.45		1.55		1.55
Wooldridge test	0.160		0.686		0.900		0.000		0.002		0.00
Modified Wald test	0.000		0.000		0.000		0.000		0.000		0.000
Hausman (P-Value)	0.000		0.842		0.001		0.977		0.216		0.001
R-Square	0.056		0.209		0.067		0.071		0.226		0.226
Prob > F	0.000		0.000		0.000		0.068		0.000		0.000

***, **, * significant at 1%, 5%, and 10%, respectively. This study uses RE regression methods as the analytical method for all models and FE regression methods for model 8. Panel A: IBs have assets greater than the median for IB assets of all the samples. Panel B: IBs have assets less than/equal to the median IB assets of all the samples.

Table 5. Regression analysis test for robustness check

	NPF (Model 10)		ROAA (Model 11)		Z-Score (Model 12)
	Coef.	Robust Std. Err.	Coef.	Robust Std. Err.	Coef.	Robust Std. Err.
EBF Lag.1	0.010***	0.003	−0.006	0.004	−0.001	0.001
LOAN	0.003	0.006	0.006	0.009	0.002	0.003
DEPOSIT	−0.001	0.007	0.002	0.012	0.000	0.005
BOD	0.272	0.355	−0.192	1.149	0.094	0.256
SSB	0.250	0.817	−1.724	2.091	−0.342	0.397
CAR	−0.023	0.015	0.094***	0.023	0.012***	0.003
DIV_INCOME	−0.050	0.086	0.141	0.181	−0.090*	0.050
SIZE	−0.017	0.138	1.495**	0.648	0.113	0.093
MUSLIM	0.008	0.007	−1.745	2.126	−0.003	0.007
GDP	−0.040*	0.021	0.064*	0.035	0.024	0.026
PUBLIC	−0.460	0.527	-	-	0.487	0.326
_cons	0.898	2.135	100.713	145.360	1.588	1.430
Breusch & Pagan LM Test	0.000		0.000		0.000
VIF	1.370		1.310		1.320
Wooldridge test	0.000		0.000		0.160
Modified Wald test	0.000		0.000		0.000
Hausman (P-Value)	0.195		0.000		0.315
R-Square	0.097		0.222		0.038
Prob > F	0.000		0.000		0.004

***, **, * significant at 1%, 5%, and 10%, respectively. This study uses RE regression methods as the analytical method for Models 10 and 12 and FE regression methods for Model 11.

Table 6. System GMM estimator

	NPF (Model 13)		ROAA (Model 14)		Z-SCORE (Model 15)
	Coef.	Std. Err.	Coef.	Std. Err.	Coef.		Std. Err.
Dependent Var. Lag.1	0.637***	0.073	0.178***	0.048	0.008		0.060
EBF	0.091***	0.030	0.003	0.007	0.002		0.002
LOAN	0.009**	0.004	0.004	0.015	−0.002		0.005
DEPOSIT	−0.010**	0.004	−0.002	0.023	0.011		0.008
BOD	−0.065	0.300	0.870	1.174	−0.390		0.398
SSB	1.106**	0.433	0.134	1.675	−0.039		0.555
CAR	0.003	0.007	0.092***	0.010	0.010*		0.005
DIV_INCOME	0.077	0.057	0.146	0.278	−0.021		0.090
SIZE	0.014	0.010	−0.150	0.029	−0.330*		0.185
MUSLIM	0.023	0.020	0.052***	0.073	−0.034		0.025
GDP	−1.185	0.737	8.634	2.031	0.028		0.026
PUBLIC	−1.107	0.743	4.167***	2.531	5.093***		1.806
_cons	0.091	0.030	0.178	0.048	7.605**		3.130
Sargan or Hansen (Prob.)	0.135		0.126			0.851
Arellano-Bond test for AR (1) (Prob.)	0.064		0.176			0.004
Arellano-Bond test for AR (2) (Prob.)	0.210		0.294			0.626
Prob > chi2	0.000		0.126			0.001

***, **, * significant at 1%, 5%, and 10%, respectively

Table A1. Operational variables

Variables	Abbreviation	Formulation
Credit risk/non-performing financing	NPF	Impaired financingsi,t/Gross financingsi,t
Profitability	ROAA	Profit after taxi,t/average total asseti,t
Insolvency risk	Z-score	(ROAAi,t, + CARi,t)/standard deviation of ROAAi,t
Equity-based financing	EBF	Equity-based financingi,t/all financingi,t
Loan	LOAN	Total financingi,t/total asseti,t
Investment Deposit Account	DEPOSIT	Total investment account holdersi,t/total asseti,t
Capital adequacy ratio	CAR	Total capitali,t/risk-weighted assetsi,t
Income diversity	DIV_INCOME	Non-financing incomei,t/total operating incomei,t
Board of directors’ index	BOD	BOD index was constructed based on four sub-indices which are: Percentage of women on the board Education level of all members. Experience of all members Cross-membership of all members Dichotomous: 1 for banks with 50% or more of the sub- indices and zero if otherwise.
Syariah supervisory boards’ index	SSB	SSB index was constructed based on four sub-indices which are: 1. Percentage of women on the board 2. Education level of all members. 3. Experience of all members 4. Cross-membership of all members Dichotomous: 1 for banks with 50% or more of the sub- indices and zero if otherwise.
Total Assets	SIZE	Logarithm of total assets
Ownership status	PUBLIC	Dichotomous: 1 for listed banks and zero if otherwise.
Muslim population	MUSLIM	The percentage of Muslims in a country
Gross Domestic Product	GDP	(GDPt-1, - GDPt)/GDP,t