Interplay of Institutional Quality, Efficiency, and Stability in The Islamic Banking Sector of Malaysia-Reference-Cited by-同舟云学术

Interplay of Institutional Quality, Efficiency, and Stability in The Islamic Banking Sector of Malaysia

Published:2024-04-29 Issue:1 Volume:18 Page:73-90
ISSN:1823-836X
Container-title:International Journal of Economics and Management
language:en
Short-container-title:IJEM

Author:

MORTADZA NOOR SHAZREEN¹,PURWANINGSIH YUNASTITI¹,TRINUGROHO IRWAN¹,MULYANINGSIH TRI¹,HAKIM LUKMAN¹

Affiliation:

1. Faculty of Economics and Business, Universitas Sebelas Maret, Indonesia

Abstract

This study examines the interplay among institutional quality, efficiency, and financial stability in the Malaysian Islamic banking sector with a special emphasis on the interaction between efficiency and institutional quality. The sample comprises 16 Islamic banks from 2012 to 2020. The indicators for financial stability are Z-score based on return on assets (ZROA) and non-performing loans (NPLs). The system generalized method of moments (GMM) is employed to overcome the potential endogeneity issue in our regression. The findings show that institutional quality (i.e. government effectiveness, regulatory quality, and rule of law) influences Islamic banking performance. Based on the interaction model, government effectiveness and regulatory quality have a negative and statistically significant impact on ZROA. Conversely, government effectiveness and regulatory quality positively and statistically influence financial stability, as measured by NPLs. As for the rule of law, financial stability (i.e., ZROA) can be achieved in a strict environment when Islamic banks are inefficient.

Publisher

Universiti Putra Malaysia

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