Market Structure, Spin-Off, and Efficiency: Evidence from Indonesian Islamic Banking Industry

ABSTRACT

After the enactment of Law 21 in 2008 that stated about the spin-off of Islamic banking units, some Islamic business units had done the spin-off. This led to an increase in the number of full-fledged Islamic banks. This study examines the relationship among spin-offs, market structure, and efficiency in the Islamic banking industry. We find a difference in efficiency between spin-off banks and non-spin-off banks. The increasing number of full-fledged Islamic banks does not mean that performance (measured by efficiency) will increase. These results show the opposite result with the goal of spin-off policy, which is to enhance the performance of Islamic banks.

KEY WORDS:

• efficiency
• Islamic banks
• market structure
• spin-off

JEL CLASSIFICATION:

• G21
• G39
• L11

Acknowledgments

This manuscript was refined during the author’s involve at Opt-Bank program Co-funded by the Erasmus+ Program of the European Union at Universite de Limoges.