Cost efficiency and liquidity risk in banking

New evidence from oic countries

Research output: Contribution to journalArticle

Abstract

This paper aims to analyze the relationship between cost efficiency and liquidity risk of Islamic banks and conventional banks in 16 selected OIC countries from 1999 to 2013. The study undertakes two-stage analysis: Data Envelopment Analysis (DEA) to compute cost efficiency; and fixed effect model to examine liquidity risk determinants. The findings indicate that cost efficiency is positively related to liquidity risk. Other significant factors include capital, bank specialization, credit risk, profitability, size, inflation, market concentration and crisis while the impact of GDP is not significant. The notion that Islamic banks have higher liquidity risk than conventional banks is weakly evidenced. The findings also highlight the importance of money market as a platform to manage liquidity risk exposure in banking.

Original languageEnglish
Pages (from-to)255-276
Number of pages22
JournalInternational Journal of Business and Management Science
Volume8
Issue number2
Publication statusPublished - 1 Jan 2018

Fingerprint

Banking
Liquidity risk
Islamic financial institutions
Factors
Bank capital
Fixed effects model
Profitability
Money market
Market concentration
Risk exposure
Credit risk
Data envelopment analysis
Inflation

Keywords

  • Cost Efficiency
  • DEA
  • Islamic Banking
  • Liquidity Risk

ASJC Scopus subject areas

  • Business and International Management
  • Economics and Econometrics

Cite this

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title = "Cost efficiency and liquidity risk in banking: New evidence from oic countries",
abstract = "This paper aims to analyze the relationship between cost efficiency and liquidity risk of Islamic banks and conventional banks in 16 selected OIC countries from 1999 to 2013. The study undertakes two-stage analysis: Data Envelopment Analysis (DEA) to compute cost efficiency; and fixed effect model to examine liquidity risk determinants. The findings indicate that cost efficiency is positively related to liquidity risk. Other significant factors include capital, bank specialization, credit risk, profitability, size, inflation, market concentration and crisis while the impact of GDP is not significant. The notion that Islamic banks have higher liquidity risk than conventional banks is weakly evidenced. The findings also highlight the importance of money market as a platform to manage liquidity risk exposure in banking.",
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