A Survival Analysis of Islamic and Conventional Banks

Are Islamic banks inherently more stable than conventional banks? We address this question by applying a survival analysis based on the Cox proportional hazard model to a comprehensive sample of 421 banks in 20 Middle and Far Eastern countries from 1995 to 2010. By comparing the failure risk for bot...

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Bibliographic Details
Published inJournal of financial services research Vol. 51; no. 2; pp. 221 - 256
Main Authors Pappas, Vasileios, Ongena, Steven, Izzeldin, Marwan, Fuertes, Ana-Maria
Format Journal Article
LanguageEnglish
Published New York Springer US 01.04.2017
Springer Nature B.V
Subjects
Bank failures
Banking industry
Commercial banks
Credit risk
Economic crisis
Economics and Finance
Efficiency
Finance
Financial Services
International finance
Islamic financing
Islamic law
Macroeconomics/Monetary Economics//Financial Economics
Profits
Risk
Studies
Survival analysis
Volatility
United States > US
Islamic banks
Survival analysis
C41
G20
G21
Financial intermediation
Failure risk
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Summary:Are Islamic banks inherently more stable than conventional banks? We address this question by applying a survival analysis based on the Cox proportional hazard model to a comprehensive sample of 421 banks in 20 Middle and Far Eastern countries from 1995 to 2010. By comparing the failure risk for both bank types, we find that Islamic banks have a significantly lower risk of failure than that of their conventional peers. This lower risk is based both unconditionally and conditionally on bank-specific (microeconomic) variables as well as macroeconomic and market structure variables. Our findings indicate that the design and implementation of early warning systems for bank failure should recognize the distinct risk profiles of the two bank types.
ISSN:0920-8550
1573-0735
DOI:10.1007/s10693-016-0239-0