Handbook of Empirical Research on Islam and Economic Life
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Handbook of Empirical Research on Islam and Economic Life

Edited by M. Kabir Hassan

In Islamic jurisprudence, a comprehensive ethic has been formulated governing how business and commerce should be run, how accountability to God and the community is to be achieved, and how banking and finance is to be arranged. This Handbook examines how well these values are translated into actual performance. It explores whether those holding true to the system are hindered and put at a disadvantage or whether the Islamic institutions have been able to demonstrate that faith-based activities can be rewarding, both economically and spiritually.
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Chapter 12: Country governance and the performance of Islamic and conventional banks: international evidence

Fadzlan Sufian, M. Kabir Hassan, Fakarudin Kamarudin and Annuar Md. Nassir

Abstract

The impact of corporate governance on banking firms has been widely documented in the literature. Noticeably absent is an extensive examination of the impact of country governance on the efficiency of banking firms. This limitation is surprising, given the fact that the banking sector remains the most important channel for savings and allocations of credit in the economy. By using data on 454 Islamic and conventional banks from 19 countries offering Islamic banking and finance products and services, this chapter attempts to fill this demanding gap. We find that voice and accountability positively influence the efficiency of both Islamic and conventional banks. On the other hand, we observe the negative impact of political stability, absence of violence and control of corruption. The findings indicate that government effectiveness, regulatory quality and rule of law negatively influence the efficiency of conventional banks, but not so in the case of Islamic banks.

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