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The effects of regulation and supervision on the risk-taking behaviour of Islamic banks.

Asutay, M. and Ayturk, Y. and Aksak, E. (2020) 'The effects of regulation and supervision on the risk-taking behaviour of Islamic banks.', Journal of Islamic accounting and business research., 11 (9). pp. 1953-1967.


Purpose: This study examines the impact of the regulatory and supervisory environment on the risk-taking behaviour of Islamic banks. The impact of the heterogeneous nature of the banking environment in the sampled countries is also considered. Design/methodology/approach: A dynamic panel data analysis with system GMM estimators was used with a sample consisting of 120 Islamic banks from 21 countries for the period 2000-2013. Findings: The results demonstrate that main regulation and supervision proxies have significant negative effects on risk levels of Islamic banks, which implies that further restricted regulatory and supervisory environment can lower risk levels of Islamic banks. In addition, the Islamic banks operating under the dual banking system seem to prefer to take a lower risk. Furthermore, the results identify that a stable political environment encourages Islamic banks to take higher risks in their operations. Originality/value: In addition to examining the common factors, the empirical analysis in this study is extended to the investigation of the effects of several political indicators on risk-taking behaviour of Islamic banks, which should be considered as an important contribution.

Item Type:Article
Full text:(AM) Accepted Manuscript
Available under License - Creative Commons Attribution Non-commercial 4.0.
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Publisher statement:This article is made available under a Creative Commons Attribution Non-commercial International Licence 4.0 (CC BY-NC 4.0) and any reuse must be in accordance with the terms outlined by the licence.
Date accepted:10 February 2020
Date deposited:12 February 2020
Date of first online publication:14 August 2020
Date first made open access:20 August 2020

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