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1 – 10 of 676Rajib Shome, Hany Elbardan and Hassan Yazdifar
This paper provides a comprehensive review of the influential and intellectual aspects of the literature on the Gulf Cooperation Council (GCC) region's banking activities.
Abstract
Purpose
This paper provides a comprehensive review of the influential and intellectual aspects of the literature on the Gulf Cooperation Council (GCC) region's banking activities.
Design/methodology/approach
This study undertakes a bibliometric meta-analysis review of the GCC region banking literature, covering 199 articles published between 2004 and 2022, extracted from the Web of Science (WoS) database, followed by a content analysis of highly cited papers.
Findings
This paper identifies the influential aspects of the GCC region banking literature in terms of journals, articles, authors, universities and countries. The paper also identifies and discusses five major research clusters: (1) bank efficiency; (2) corporate governance (CG) and disclosure; (3) performance and risk-taking; (4) systemic risk, bank stability and risk spillovers and (5) intellectual capital (IC). Finally, it identifies gaps in the literature and highlights some important research issues that provide directions for future research.
Research limitations/implications
This paper is limited to the articles indexed in the WoS database and written in English. Though the WoS database encompasses a wide range of multidisciplinary journals, there is a chance that some relevant articles are not included in the WoS database or written in another language.
Practical implications
This study provides regulators, practitioners and academics with valuable insight and an in-depth understanding of the banking system of the GCC region.
Originality/value
To the best of the authors' knowledge, this is the first review paper on GCC region banking literature. This study provides regulators, practitioners and academics with valuable insight and an in-depth understanding of the banking system of the GCC region.
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Mohamed Albaity, Ray Saadaoui Mallek, Hussein A. Hassan Al-Tamimi and Philip Molyneux
This study aims to investigate whether quality of governance (QoG), trustworthiness and confidence impacted bank credit growth in Gulf Cooperation Council (GCC). In addition, it…
Abstract
Purpose
This study aims to investigate whether quality of governance (QoG), trustworthiness and confidence impacted bank credit growth in Gulf Cooperation Council (GCC). In addition, it examined whether credit growth differed between Islamic and conventional banks in GCC countries.
Design/methodology/approach
Using data from 104 (56 conventional banks and 48 Islamic banks) banks located in GCC countries from 2012 to 2019, the two-step system generalized method of moments estimator was used to analyse the data.
Findings
Evidence was found of the influence of trust in institutions in boosting credit growth. The QoG generally expanded credit growth which instilled confidence in the economy and the banking sector. Credit growth was more pronounced for Islamic banks. This paper has contributed to the literature evaluating the determinants of credit growth in GCC.
Originality/value
This paper has been one of the few studies exploring the effect of trustworthiness and confidence (informal institutions) and macro governance (formal institutions) in GCC. GCC is different from other regions, as it is oil-dependent and shares similar legal, social and cultural aspects. This suggested that these might yield different results than expected.
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Omar Al Farooque, Rayed Obaid Hammoud AlObaid and Ashfaq Ahmad Khan
This study explores, first, the performance effect (accounting- and market-based performance) of intellectual capital (IC), measured using the value-added intellectual coefficient…
Abstract
Purpose
This study explores, first, the performance effect (accounting- and market-based performance) of intellectual capital (IC), measured using the value-added intellectual coefficient (VAIC) and its modified version (MVAIC), on Islamic and conventional listed banks in Gulf Cooperation Council (GCC) countries and, second, whether Islamic banks outperform conventional banks in utilising IC.
Design/methodology/approach
Using resource-based view theory and literature reviews, regression analyses are conducted on data for the period 2012–2019 on 26 Islamic and 42 conventional banks. For hypothesis testing, the generalised method of moments panel data regression analysis is applied after addressing endogeneity issues.
Findings
Results, after controlling for corporate governance, indicate that the performance effects of IC (VAIC and MVAIC) on both bank types largely converge and Islamic banks do not outperform conventional banks in IC use. IC has a stronger effect on accounting performance measures for conventional banks than for Islamic banks, but IC has some effect on market performance measures for Islamic banks alone. Corporate governance variables do not play a significant role in the presence of VAIC and MVAIC although there are differences in corporate governance between the two bank types.
Originality/value
This study bridges the gap in GCC banking sector literature on the association between IC efficiency and performance measures of Islamic and conventional banks, from a comparative perspective. It enhances understanding, about the IC–financial performance nexus, of policymakers, regulators, bank managers and other stakeholders interested in the influence of different business models, financing/investment methods and governance structure on the performance of both bank types.
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Mohammad Omar Farooq, Mohammad Dulal Miah, Md Nurul Kabir and M. Kabir Hassan
This paper aims to examine the impact of bank’s capital buffer on return on equity (ROE) in the context of Islamic and conventional banks in GCC countries.
Abstract
Purpose
This paper aims to examine the impact of bank’s capital buffer on return on equity (ROE) in the context of Islamic and conventional banks in GCC countries.
Design/methodology/approach
The authors collect data from 83 commercial banks comprising of 49 conventional banks and 34 Islamic banks for the period 2010–2019. The final data set comprises of 744 bank-year observations. The authors apply generalized methods of moments estimation technique and panel least square to analyze the data.
Findings
The authors document that Tier-1 capital, total regulatory capital (TRC) and equity to asset ratio (EAR) negatively affect banks’ ROE. However, the impact disappears for conventional banks and sustains for Islamic banks if these two clusters of banks are treated separately. Furthermore, the negative impact of equity capital on earning is more pronounced for large and listed commercial banks.
Practical implications
Findings of this research imply that Islamic banks in GCC countries has scope to manage equity capital more efficiently. Hence, they should concentrate on using banks equity wisely to successfully compete with the conventional banks.
Originality/value
Since the global financial crisis of 2009, Islamic banks of GCC countries have been reporting lower ROE compared to their conventional counterparts. On the other hand, Islamic banks maintain higher level of Tier-1 capital, TRC and EAR. This evidence hypothetically suggests that Islamic banks are overly cautious in managing their capital buffer that results in lower ROE. To the best of the author’s/authors’ knowledge, no other study in the literature tests this hypothesis in the GCC context.
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Fatma Ehab Ahmed and Ahmed Gamal Mohamed
This paper aims to contribute to the political connection literature by investigating the impact of political connection on banks’ profitability in Bahrain.
Abstract
Purpose
This paper aims to contribute to the political connection literature by investigating the impact of political connection on banks’ profitability in Bahrain.
Design/methodology/approach
Exploiting the unique natural experiment of the 2017 Qatar blockade crisis, this study uses primary data of political connection. The study uses the difference-in-difference (DID) methodology to investigate the effect of political connections on banks’ profitability.
Findings
The main finding is that political connections have a positive effect on bank profitability in Bahrain. The paper finds that the ongoing GCC crisis has had a negative effect on the banking sector of Bahrain. During the Qatar blockade crisis, politically connected banks suffered more than their non-connected counterparts.
Practical implications
The result suggests that the Qatar blockade crisis has had a notable effect on the banking system throughout the region, including both the boycotting countries as well as Qatar. In the banking sector, politically connected banks are the most harmed by the crisis. Investors can enhance their hedging and investment decisions by exploiting knowledge of how political connections affected bank profitability during the Qatar diplomatic crisis and how that effect can be transmitted from one market to another. In addition, regulators could use insights about the association between political connections and profitability in Bahrain to undertake strategies to increase banks’ profitability and mitigate the transmission effect of a crisis by ensuring adequate regulation and supervision.
Originality/value
This paper offers four novel contributions to political connection literature as follows: Firstly, the study fills in an important gap in the literature as it is the first attempt to quantify the impact of political connections on bank performance in Bahrain. To the best of the authors’ knowledge, the role of political factors in Bahrain has not been studied about the banking system. Secondly, the study depends on primary data about political connections collected manually from various sources. Thirdly, this is the first study to investigate the effect of the Qatar blockade on the banking sector. Lastly, the evidence suggests that politically connected banks are more profitable than banks that lack political connections. However, the Qatar blockade crisis resulted in a sharp decrease in bank profitability, suggesting that the crisis significantly harmed the banking sector in Bahrain.
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Tanzina Akhter, Zairihan Abdul Halim, Saima Mehzabin, Ahanaf Shahriar and Md. Abul Kalam Azad
The global financial crisis of 2008 has put greater doubt on the bank risk-management effectiveness around the world. As a part of the response to such doubt, the Gulf Cooperation…
Abstract
Purpose
The global financial crisis of 2008 has put greater doubt on the bank risk-management effectiveness around the world. As a part of the response to such doubt, the Gulf Cooperation Council (GCC) region is formulating some feasible approaches to manage bank risk. In this regard, an understanding of the role of the region’s culture and economic freedom will provide immense input into this risk management approach. This study examines the impact of national culture and economic freedom on bank risk-taking behavior.
Design/methodology/approach
Data on bank risk measures, culture and economic freedom are obtained from the FitchConnect, World Bank database, Hofstede’s insights and Heritage Foundation. Generalized least squares and two step-system generalized method of moments are then used to examine the risk-taking behavior of the region.
Findings
Banks of the GCC region operating in the low power distance, high collectivism, masculine and low uncertainty avoidance cultures are susceptible to assuming more operational and insolvency risks. Furthermore, banks’ overall risk-taking inclination is positively increased once the region has considerable business and monetary freedom.
Practical implications
The governments and bank regulatory bodies may benefit from the study findings by developing the best economic freedom index and national culture that enriches risk management practices and curves excessive risk-taking inclination.
Originality/value
To the best of the authors’ knowledge, this study is the first attempt to address the interplay among culture, economic freedom and bank risk to ensure constructive risk-taking behavior for the GCC banking industry.
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Mukesh Kumar, Muna Ahmed Al-Romaihi and Bora Aktan
The current study aims to investigate the determinants of nonperforming loans (NPLs) in the GCC economies during the period spanning 2000 to 2018. It also examines whether the…
Abstract
Purpose
The current study aims to investigate the determinants of nonperforming loans (NPLs) in the GCC economies during the period spanning 2000 to 2018. It also examines whether the worldwide financial crisis of 2007–2008, which brought the issue of non–performing loans to the greater attention of academics and policymakers, had a substantial impact on NPLs in this region.
Design/methodology/approach
The sample consists of 53 conventional banks from GCC countries, and the basic data for the study is obtained from various sources such as Bankscope, IMF World Economic Outlook, World Bank and Chicago Board of Options Exchange Market Volatility Index. The estimations were done by dynamic panel data regression modeling using system generalized methods of moments.
Findings
The findings reveal that both, the non-oil real GDP growth rate and inflation have favorable effects on NPLs. On the other hand, domestic credit to the private sector and the volatility index have an adverse effect on NPLs. Furthermore, the period-wise analysis shows that the relevance and significance of the determinants of NPLs vary between the precrisis and postcrisis periods. It is also reflected through the intercept dummy, which is found to be significant, indicating that the financial crisis, as a global economic factor, had a significant impact on NPLs. A number of robustness tests are applied, which indicate that the results are mostly robust and consistent in terms of the significance of the explanatory variables and the direction of their relationship with the dependent variable.
Practical implications
Policymakers and bank authorities must strive to maintain a healthy economy and implement macroprudential policies to improve the financial stability of banks and reduce credit risk.
Originality/value
To the best of the authors’ knowledge, this is likely the first study that empirically investigates the influence of the financial crisis on NPLs in the context of GCC economies. In addition, the research spans 19 years to produce more conclusive results.
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Fatma Ahmed and David G. McMillan
This paper investigates the effect of political connections on the capital structure of banks before and after the financial crisis in Gulf Cooperation Council (GCC) countries.
Abstract
Purpose
This paper investigates the effect of political connections on the capital structure of banks before and after the financial crisis in Gulf Cooperation Council (GCC) countries.
Design/methodology/approach
This paper employs the natural experiment that the financial crisis offers and uses a difference-in-differences model to investigate the effect of political connections on capital structure. Capital structure is measured by the total debt to total assets ratio. Control variables include bank size, growth, profitability, coverage ratio and volatility. The research sample includes all the banks in the GCC from 2005 to 2016.
Findings
The authors find that political connections negatively affect banks capital structure decisions. The results contradict the claim that politically connected firms tend to sustain higher debt due to government privilege and a lower chance of bankruptcy. Additionally, the results show that after the financial crisis, politically connected banks de-lever more compared to non-connected counterparts. This could suggest that the degree of support received by connected banks changes or that they exploit their retained earnings for financing (individual country results, however, suggest that leverage increases in Qatar).
Originality/value
This paper provides several contributions. First, GCC countries present an interesting and important area in which to study the relation between political connections and capital structure as it represents a mix of newer markets that seek to attract investors and foreign capital. Second, to the best of our knowledge, the present study is the first to examine the effect of the political connection and capital structure in GCC region where royal families play a significant role, especially for banks. Third, our paper is the first to link connections with leverage after the financial crisis in the banking sector. Moreover, our paper is the first to investigate this phenomenon in the GCC countries using manually collected primary data.
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This study attempts to comprehensively analyze the cost Malmquist productivity index of conventional and Islamic banks in Saudi Arabia, the largest dual banking sector in the…
Abstract
Purpose
This study attempts to comprehensively analyze the cost Malmquist productivity index of conventional and Islamic banks in Saudi Arabia, the largest dual banking sector in the world, during the COVID-19 pandemic.
Design/methodology/approach
This study employs the novel approach of cost Malmquist productivity index, which focuses on production costs, to measure the change in cost productivity so that the actual impact of the COVID-19 pandemic could be captured.
Findings
The Saudi Central Bank has successfully mitigated the impact of the COVID-19 epidemic on the Saudi banking sector by implementing several policies and services. This success is reflected in the large positive shift in the production frontier of Saudi banks. Moreover, it was found that Islamic Saudi banks were by far more productive than conventional Saudi banks during the COVID-19 pandemic. However, the total cost productivity index (CMPCH) of Islamic Saudi banks starts to decline sharply in the last quarter of 2022 compared to conventional Saudi banks, indicating that Islamic banks in Saudi Arabia are suffering the most from the tighter monetary policy recently implemented by the Saudi Central Bank.
Practical implications
The results provide insights for policymakers and investors on how different types of banks respond differently to economic crises and monetary policy changes. Targeted support measures may be needed to ensure all banks remain productive and efficient.
Originality/value
To the author’s knowledge, this is the first study to use this innovative methodology to assess the impact of COVID-19 on bank performance in a dual banking sector.
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Abiot Tessema and Heba Abou-El-Sood
Audit rotation (AR) is a key policy initiative implemented in global jurisdictions to deal with concerns about audit quality. Auditing financial reports involves communicating…
Abstract
Purpose
Audit rotation (AR) is a key policy initiative implemented in global jurisdictions to deal with concerns about audit quality. Auditing financial reports involves communicating attested value-relevant company information to investors, and hence audit quality plays a role in the quality of financial reporting information. This paper aims to investigate whether AR affects the degree of information asymmetry (IS) between investors. It further aims to examine whether voluntary AR results in less asymmetric information compared to mandatory AR. Additionally, it examines whether political connections moderate the association between AR and IS.
Design/methodology/approach
The authors use data from publicly traded banks across the Gulf Cooperation Council (GCC) for the period 2010–2018. The authors include several variables to control for corporate governance and other firm-specific characteristics by using country-year fixed-effects regression model.
Findings
The authors find higher IS for banks that periodically rotate auditor, while banks voluntarily choose to rotate auditors obtain high-quality audits, which results in higher trading volume and lower stock return volatility, hence lower IS. The results suggest that when banks voluntarily choose to rotate auditors, investors perceive these banks as more committed to obtaining high-quality audits relative to mandatory AR. Providing higher quality audits enhances the credibility of reported information and thus reduce the level of IS. Moreover, IS following AR is higher for politically connected banks than for similar but politically unconnected banks. Finally, investors perceive voluntary AR as a disciplining tool, which mitigates IS. This mitigating role is not affected by bank political connectedness.
Research limitations/implications
This study has limitations as the definition of AR could be interpreted as binary or too narrow, and hence it may not be appropriate to generalize findings to different contexts. Nonetheless, this study casts light on a new perspective to reconcile the existing mixed evidence on the influence of AR on IS and the moderating role of political connections. A further limitation is that because of data unavailability, the authors were unable to use other proxies (e.g. bid-ask spreads and analyst forecast dispersion) of IS.
Practical implications
The present findings provide insight to regulators, policymakers and standard setters on the potential adverse effect of political connections on the role of AR in mitigating IS. The results underscore the importance of voluntary AR, and suggest that regulators, policymakers and standard setters encourage firms to rotate their auditors periodically.
Originality/value
This study provides evidence in a setting that is unique at the economic, social and regulatory levels. Prior literature is lacking and has been centered on developed countries or focusing on single-country specifications. The data set of this study is unique and allows us to examine the interplay between political influence that arises through ownership and management roles of influential members of state.
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