The impact of management performance on risk-taking behavior in a dual banking system: A cross-country analysis
-
DOIhttp://dx.doi.org/10.21511/bbs.18(4).2023.11
-
Article InfoVolume 18 2023, Issue #4, pp. 116-128
- 240 Views
-
66 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
In an era defined by global economic uncertainty, the role of management performance in influencing bank risk-taking has become pivotal. This urgency stems from the evolving dynamics of the banking sector and the need for robust risk management strategies. This study investigates the relationship between management performance and banks’ risk-taking behavior, drawing data from 248 banks across eight countries comprising Indonesia, Malaysia, Bangladesh, Pakistan, Saudi Arabia, Oman, Bahrain, and the United Arab Emirates spanning 2013–2021 using panel data analysis. The study reveals that management performance measured by a cost-to-income ratio (β = –0.44, p < 0.01) has a negative and significant relationship with bank risk-taking behavior. In essence, a bank with superior management performance, indicated by a lower cost-to-income ratio, tends to have greater financial stability, as evidenced by a higher Z-score. Notably, external factors like the financial crisis and institutional development as moderating variables do not significantly alter the relationship between management performance and banks’ risk-taking behavior. The study also discovers that Islamic banks (β = 0.31, p < 0.01) outperform their conventional counterparts in risk management and management performance. However, it is worth noting that the results of regional analysis demonstrate variations across the Southeast, South, and Middle East regions. After conducting several robustness check tests, the findings of this study remain consistent, offering valuable implications for both policymakers and bank management. These insights emphasize the importance of formulating appropriate regulations and frameworks to enhance management performance at the banking level.
Acknowledgment
The authors gratefully acknowledge the support from Direktorat Penelitian dan Pengabdian Masyarakat (DPPM) Universitas Islam Indonesia No: 006/Dir/DPPM/70/Pen.Unggulan/III/2023 for providing a research grant to this study.
- Keywords
-
JEL Classification (Paper profile tab)G20, G21, G33
-
References32
-
Tables6
-
Figures0
-
- Table 1. Explanation of variables
- Table 2. Data description
- Table 3. Correlation
- Table 4. Baseline result
- Table 5. The baseline result at the regional level
- Table 6. Robustness checks
-
- Alandejani, M., & Asutay, M. (2017). Non-performing loans in the GCC banking sectors: Does the Islamic finance matter? Research in International Business and Finance, 42, 832-854.
- Albaity, M., Mallek, R. S., & Noman, A. H. M. (2019). Competition and bank stability in the MENA region: The moderating effect of Islamic versus conventional banks. Emerging Markets Review, 38, 310-325.
- Albaity, M., Mallek, R. S., Abu, A. H., & Al-Tamimi, H. A. H. (2022). Bank Credit Growth and Trust: Does Institutional Quality Matter? Evidence from the Association of Southeast Asian Nations. Asian Development Review, 39(2), 223-259.
- Alsharif, M. (2021). Risk, efficiency and capital in a dual banking industry: evidence from GCC banks. Managerial Finance, 47(8), 1213-1232.
- Bakhouche, A., El Ghak, T., & Alshiab, M. (2022). Does Islamicity matter for the stability of Islamic banks in dual banking systems? Heliyon, 8(4), e09245.
- Banna, H., Ahmad, R., & Koh, E. H. Y. (2018). How does total quality management influence the loan quality of the bank? Total Quality Management and Business Excellence, 29(3-4), 287-300.
- Belanes, A., Ftiti, Z., & Regaieg, R. (2015). What can we learn about Islamic banks efficiency under the subprime crisis? Evidence from GCC Region. Pacific Basin Finance Journal, 33, 81-92.
- Borauzima, L. M., & Muller, A. (2022). Bank risk-taking and competition in developing banking markets: Does efficiency level matter? Evidence from Africa. Emerging Markets Review, 55, 100963.
- Bourkhis, K., & Nabi, M. S. (2013). Islamic and conventional banks’ soundness during the 2007-2008 financial crisis. Review of Financial Economics, 22(2), 68-77.
- Carr, S., Mak, Y. T., & Needham, J. E. (1997). Differences in strategy, quality management practices and performance reporting systems between ISO accredited and non-ISO accredited companies. Management Accounting Research, 8(4), 383-403.
- Contreras, S., Ghosh, A., & Kong, J. H. (2021). Financial crisis, Bank failures and corporate innovation. Journal of Banking and Finance, 129, 106161.
- Danlami, M. R., Abduh, M., & Abdul Razak, L. (2022). CAMELS, risk-sharing financing, institutional quality and stability of Islamic banks: evidence from 6 OIC countries. Journal of Islamic Accounting and Business Research, 13(8), 1155-1175.
- Ding, B. Y., & Wei, F. (2023). Overlapping membership between risk management committee and audit committee and bank risk-taking: Evidence from China. International Review of Financial Analysis, 86, 102501.
- Elnahass, M., Trinh, V. Q., & Li, T. (2021). Global banking stability in the shadow of Covid-19 outbreak. Journal of International Financial Markets, Institutions and Money, 72, 101322.
- Fakhrunnas, F., Astuti, R. D., & Anto, M. B. H. (2022a). Determinants of non-performing financing in Indonesian Islamic banks: A regional and sectoral analysis. Banks and Bank Systems, 17(4), 72-86.
- Fakhrunnas, F., Nugrohowati, R. N. I., Haron, R., & Anto, M. B. H. (2022b). The Determinants of Non-Performing Loans in the Indonesian Banking Industry: An Asymmetric Approach Before and During the Pandemic Crisis. SAGE Open, 12(2), 1-13.
- Hidayat, S. E., Sakti, M. R. P., & Al-Balushi, R. A. A. (2021). Risk, efficiency and financial performance in the GCC banking industry: Islamic versus conventional banks. Journal of Islamic Accounting and Business Research, 12(4), 564-592.
- Ibrahim, M. H., & Law, S. H. (2019). Financial intermediation cost in dual banking system; The role of Islamic banking. Bulletin of Monetary Economics and Banking, 22(4), 529-550.
- ICD-Refinitiv. (2022). Islamic Finance Development Report 2022: Embracing Change.
- Isa, M., & Lee, S. P. (2020). Does the Shariah committee influence risk-taking and performance of Islamic banks in Malaysia? Journal of Islamic Accounting and Business Research, 11(9), 1739-1755.
- Kathwala, Y., & Johnson, J. (1990). Quality Issues in Banking: A Conceptual Approach. International Journal of Bank Marketing, 8(6), 35-39.
- Khan, M. A., Siddique, A., & Sarwar, Z. (2020). Determinants of non-performing loans in the banking sector in developing state. Asian Journal of Accounting Research, 5(1), 135-145.
- Kim, H., Batten, J. A., & Ryu, D. (2020). Financial crisis, bank diversification, and financial stability: OECD countries. International Review of Economics and Finance, 65, 94-104.
- Mohammad, S., Asutay, M., Dixon, R., & Platonova, E. (2020). Liquidity risk exposure and its determinants in the banking sector: A comparative analysis between Islamic, conventional and hybrid banks. Journal of International Financial Markets, Institutions and Money, 66, 101196.
- Mohrman, S. A., Tenkasi, R. V., Lawler, E. E., & Ledford, G. E. (1995). Total quality management: Practice and outcomes in the largest US firms. Employee Relations, 17(3), 26-41.
- Nabi, M. S., & Suliman, M. O. (2009). Institutions, banking development, and economic growth. Developing Economies, 47(4), 436-457.
- Office of the Comptroller of Currency (OCC). (1988). Bank Failure: An evaluation of the factors contributing to the failure of national banks.
- Safiullah, M. (2021). Financial stability efficiency of Islamic and conventional banks. Pacific Basin Finance Journal, 68, 101587.
- Saraph, J. V., Benson, G. P., & Schroeder, R. G. (1989). An instrument for measuring the critical factors of quality management. Decision Sciences, 20(4), 810-829.
- Shamshur, A., & Weill, L. (2019). Does bank efficiency influence the cost of credit? Journal of Banking and Finance, 105, 62-73.
- Stoll, J. E. (1986). Quality on the Line. Surveyor New York, 20(4), 30-32.
- Zulkhibri, M., & Sukmana, R. (2017). Financing Channels and Monetary Policy in a Dual Banking System: Evidence from Islamic Banks in Indonesia. Economic Notes, 46(1), 117-143.