Demand trade-off between PLSs and markups in the presence of a conventional banking relationship: The case of Moroccan companies
-
DOIhttp://dx.doi.org/10.21511/bbs.18(2).2023.16
-
Article InfoVolume 18 2023, Issue #2, pp. 189-201
- 387 Views
-
172 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
Theoretical explanations based on information asymmetry constitute the dominant paradigm of the near disappearance of PLSs (profit and loss sharing). This assumption implicitly implies a hypothesis on the power of contractual choice exclusively monopolized by Islamic banks. The theoretical positioning in this study to explain the arbitrage between PLSs and markups is based on a lack of demand. In this sense, this paper attempts to verify the demand trade-off of Moroccan companies between PLSs and markups. A logistic regression was used to establish several findings. The evidence suggests that past banking relationships with conventional banks and debt maturity both favor the commercialization of markups. On the other hand, financial quality of firms has no direct impact on the choice between PLSs and markups. This assertion implies that it is incorrect to assume that sole entrepreneurs undertaking high-risk projects choose to be funded by PLSs. Combining that with the fact that companies that agree to be funded by PLSs agree to share profits, private information and decision-making power, it can be said that PLSs can have a good chance of thriving in Morocco if Islamic banks provide a favorable climate for their marketing.
- Keywords
-
JEL Classification (Paper profile tab)G21, G23, E58
-
References48
-
Tables6
-
Figures1
-
- Figure 1. ROC curve
-
- Table 1. Questionnaire response rate
- Table 2. Test of the whole model
- Table 3. Goodness of fit
- Table 4. Likelihood ratio test of effects
- Table 5. Variance inflation factor
- Table 6. Estimates of logistic regression coefficients
-
- Abdalla, M. G. E. (1999). Partnership (Musharakah): A new option for financing small enterprises. Arab Law Quarterly, 14(3), 257.
- Abdul-Rahman, A., & Nor, S. M. (2016). Challenges of profit-and-loss sharing financing in Malaysian Islamic banking. Geografia, 12(2).
- Abedifar, P., M. Ebrahim, S., Molyneux, P., & Tarazi, A. (2016). Islamic banking and finance: Recent empirical literature and directions for future research. In A Collection of Reviews on Savings and Wealth Accumulation (pp. 59-91).
- Ahmed, A. G. (2008). The implication of using profit and loss sharing modes of finance in the banking system, with a particular reference to equity participation (partnership) method in Sudan. Humanomics, 24(3), 182-206.
- Alkhan, A. M. (2020). Analyzing the Practice of Mushāraka Mutanāqisa in the Islamic Banking Industry: The Kingdom of Bahrain as a Case Study. Asian Economic and Financial Review, 10(3), 275-288.
- Alomar, I. (2006). Financial Intermediation in Muslim Community: Issues and Problems (MPRA Paper No. 8298).
- Altman, E. I. (1968). Financial ratios, discriminant analysis and the prediction of corporate bankruptcy. The Journal of Finance, 23(4), 589-609.
- Beneish, M. D., & Press, E. (1995). The resolution of technical default. Accounting Review, 70(2), 337-353.
- Bond, P., & Rai, A. S. (2008). Cosigned vs. group loans. Journal of Development Economics, 85(1-2), 58-80.
- Boot, A. W., Thakor, A. V., & Udell, G. F. (1991). Credible commitments, contract enforcement problems and banks: Intermediation as credibility assurance. Journal of Banking & Finance, 15(3), 605-632.
- Brick, I. E., & Palia, D. (2007). Evidence of jointness in the terms of relationship lending. Journal of Financial Intermediation, 16(3), 452-476.
- Dar, H. A., & Presley, J. R. (2000). Lack of profit loss sharing in Islamic banking: management and control imbalances. International Journal of Islamic Financial Services, 2(2), 3-18.
- Dusuki, A. W. (2007). The Ideal of Islamic Banking: A Survey of Stakeholders’s Pereption. Review of Islamic Economics, 11, 29-52.
- Farooq, M. O. (2007). Partnership, equity-financing and Islamic finance: whither profit-loss sharing? Review of Islamic Economics, 11, 67-88.
- Farooq, M., & Ahmed, M. M. M. (2013). Musharakah financing: Experience of Pakistani banks. World Applied Sciences Journal, 21(2), 181-189.
- Flannery, M. J. (1986). Asymmetric information and risky debt maturity choice. The Journal of Finance, 41(1), 19-37.
- Fried, J., & Howitt, P. (1980). Credit rationing and implicit contract theory. Journal of Money, Credit and Banking, 12(3), 471-487.
- Hasan, I., Lee, H., Qiu, B., & Saunders, A. (2022). Climate-related Disclosure Commitment of the Lenders, Credit Rationing, and Borrower Environmental Performance. SSRN.
- Iqbal, M., & Llewellyn, D. T. (Eds.). (2002). Islamic banking and finance: new perspectives on profit sharing and risk. Edward Elgar Publishing.
- Iqbal, M., Aḥmad, A., & Khan, T. (1998). Challenges facing Islamic banking (Vol. 1). Jeddah: Islamic Research and Training Institute.
- Jan, S., & Asutay, M. (2019). A model for Islamic development: An approach in Islamic moral economy. Edward Elgar Publishing.
- Kane, E. J., & Malkiel, B. G. (1965). Bank portfolio allocation, deposit variability, and the availability doctrine. The Quarterly Journal of Economics, 79(1), 113-134.
- Khan, M. M., & Bhatti, M. I. (2008). Development in Islamic banking: a financial risk-allocation approach. The Journal of Risk Finance, 9(1), 40-51.
- Khan, T. (1995). Demand for and supply of markup and PLS funds in Islamic banking: some alternative explanations. Islamic Economic Studies, 3(1).
- Khan, T., & Ahmed, H. (2002). Credit Risk Management in Islamic Banking. In M. K. Hassan & M. K. Lewis (Eds.), Handbook of Islamic Banking (pp. 148-158). Edward Elgar Publishing, Inc.
- Leland, H. E., & Pyle, D. H. (1977). Informational asymmetries, financial structure, and financial intermediation. The Journal of Finance, 32(2), 371-387.
- Liu, M. H., Margaritis, D., & Tourani-Rad, A. (2011). Asymmetric information and price competition in small business lending. Journal of Banking & Finance, 35(9), 2189-2196.
- Lobez F., & Vilanova, L. (2006). Microéconomie bancaire. Paris: Presse universitaire de France.
- Mansoori, M. T. (2011). Is “Islamic Banking” Islamic? Analysis of current debate on Sharī’ah legitimacy of Islamic banking and finance. Islamic Studies, 50(3-4), 383-411.
- Mansour, W., Ben Abdelhamid, M., & Heshmati, A. (2015). Recursive profit-and-loss sharing. Journal of Risk, 17(6), 21-50.
- Minhat, M., & Dzolkarnaini, N. (2016). Islamic corporate financing: does it promote profit and loss sharing? Business Ethics: A European Review, 25(4), 482-497.
- Nagaoka, S. (2010). Reconsidering mudarabah contracts in Islamic finance: What is the economic wisdom (hikmah) of partnership-based instruments? Review of Islamic Economics, 13(2), 65-79.
- Nouman, M., & Ullah, K. (2014). Constraints in the application of partnerships in Islamic banks: The present contributions and future directions. Business & Economic Review, 6(2), 47-62.
- Nouman, M., Ullah, K., & Jan, S. (2022). Domains and motives of Musharakah spur in the Islamic banking industry of Pakistan. The Singapore Economic Review, 67(01), 381-409.
- Othman, A. N., & Masih, M. (2015). Do profit and loss sharing (PLS) deposits also affect PLS financing? Evidence from Malaysia based on DOLS, FMOLS and system GMM techniques (MPRA Paper No. 65224). Munich Personal RePEc Archive.
- Petersen, M. A., & Rajan, R. G. (2002). Does distance still matter? The information revolution in small business lending. The Journal of Finance, 57(6), 2533-2570.
- Pryor, F. L. (2007). The economic impact of Islam on developing countries. World Development, 35(11), 1815-1835.
- Roosa, R. V. (1951). Interest rates and the central bank. In Money, trade, and economic growth: in honor of John Henry Williams (pp. 270-295). New York: The Macmillan Company.
- Ross, S. A. (1977). The determination of financial structure: the incentive signaling approach. The Bell Journal of Economics, 8(1), 23-40.
- Sadique, M. A. (2010a). Islamic Banks’ Dilemma Between Ideals and Practice: Debt or Equity. Global Journal of Management and Business Research, 10(2),147-150.
- Sadique, M. A. (2010b). Transition of Islamic banks from debt-based modes to equity-based financing: issues and prospects. In International Conference on Islamic Banking & Finance: Cross Border Practices & Litigations, International Islamic University Malaysia.
- Sadr, K. (1999). The Role of Musharakah Financing in the Agricultural Bank of Iran. Arab Law Quarterly, 14(3), 245-256.
- Schwert, M. (2018). Bank capital and lending relationships. The Journal of Finance, 73(2), 787-830.
- Shaikh, M. A. (2011). Contemporary Islamic Banking: The Issue of Murābaḥah. Islamic Studies, 50(3-4), 435-448.
- Song, F., & Thakor, A. V. (2007). Relationship banking, fragility, and the asset-liability matching problem. The Review of Financial Studies, 20(6), 2129-2177.
- Stice, D. (2018). The market response to implied debt covenant violations. Journal of Business Finance & Accounting, 45(9-10), 1195-1223.
- Stiglitz, J. E., & Weiss, A. (1981). Credit rationing in markets with imperfect information. The American Economic Review, 71(3), 393-410.
- Zhen, X., Shi, D., Li, Y., & Zhang, C. (2020). Manufacturer’s financing strategy in a dual-channel supply chain: Third-party platform, bank, and retailer credit financing. Transportation Research Part E: Logistics and Transportation Review, 133, 101820.