Search

This article investigates the effect of efficiencies on market risk using a sample of Chinese commercial banks from 2000 to 2015 using different measures of market risk; the Value at Risk (VaR) and Expected Shortfall (ES). The cost and profit efficiencies are estimated by the Stochastic Frontier Analysis (SFA) on the 12 biggest banks listed on the Shanghai Stock Exchange. In testing the effect between efficiency and market risk, this study applied four different models to uncover the relationship between VaR and ES as measures of market risk on cost and profit efficiencies. Utilising a panel data analysis, the results show that different banks efficiencies affect market risk measures differently. While bank cost efficiency reduces market risk, increase in profit efficiency increase market risk. The analysis in this study helps explain the unconvincing evidence of an inefficiencies-risk connection in the bank sector. Bank regulators and managers may need to focus on the cost and profit efficiencies-related initiatives to better manage the market risk. These findings provide bank managers with more understanding of bank risk and serve as an underpinning for bank supervision efforts aimed at strengthening the joint risk management of efficiency market risks.

The recurring crises have evidenced poor liquidity risk management and ineffective regulation in banking. Consequently, banking regulations have undergone continuous reforms to bolster stability in the banking system. Nonetheless, theoretical and empirical evidence provide conflicting results that warrant comprehensive research, particularly for emerging Islamic banking. This study examines the role of banking regulation on the liquidity risk of 245 conventional banks and 68 Islamic banks from selected 14 Organization of the Islamic Cooperation (OIC) from 2000 to 2017 utilising the dynamic panel GMM (generalized method of moments) technique. We measure liquidity risk using the Net Stable Funding Ratio (NSFR) and the total financing-to-total deposits and short-term funding (LDEP). Meanwhile, the regulatory measures are asset restriction (AR), private monitoring (PM), supervisory power (SP) and capital requirements (CR). The findings suggest that regulation has a limited impact on bank liquidity risk. The CR supports the value creation of regulation through the reduction in banks’ liquidity risks, while PM and SP are agency costs of regulation that lead to higher liquidity risks. The impact of CR is lower on liquidity risk in Islamic banking than conventional ones, probably due to limited Islamic liquidity risk management facilities. Thus, regulators should strengthen Islamic liquidity risk instruments and markets to facilitate Islamic banking growth.

PurposeThis paper aims to explore the strategies used by venture capital (VC) firms in assisting entrepreneurs who have business potential but lack capital. The study also aims to investigate whether the VC strategy can be adopted by Islamic banks throughmusharakahfinancing.Design/methodology/approachApart from content analysis, primary data were gathered from several interview sessions with the management of three VC firms and two Islamic banks.FindingsIslamic banks in Malaysia have great potential to offermusharakahfinancing and mitigate risk by adopting the following five VC strategies: method of selection, channelling of funds, monitoring, non-capital assistance and period of investment. We propose the channelling of corporate social responsibility funds formusharakahfinancing as an initial step in applying VC strategy.Research limitations/implicationsGiven the limited number of willing and eligible respondents in Malaysia, the scope of this study can be widened to a cross-country analysis wheremusharakahfinancing is widely adopted.Practical implicationsThis study motivates regulatory bodies and Islamic banks to considermusharakahfinancing using the risk monitoring strategy adopted from the VC industry.Originality/valueThis study is the first to empirically explore the strategy adopted by VC companies and evaluate whether such a strategy is suitable for the concept ofmusharakahfinancing.

This paper investigates whether FS affects bank liquidity risk. Using the Malaysian banking data sets, we compare the FS-liquidity risk relationships between the Islamic and conventional banking institutions. FSs are measured by real estate financing, financing concentration, short-term FS stability, and finally medium-term FS stability. Meanwhile, for liquidity risk measures, we adopt the BASEL III approach such as liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR) in quantifying short- and long-term liquidity risk, respectively. The unbalanced static panel regressions of 27 conventional and 17 Islamic banks from 1994 to 2014 were analyzed to evaluate the relationships. Our results illustrate that increasing number of real estate financing and short-term FS stability of the Islamic banks may increase both their short- and long-term liquidity risks. On the other hand, even though real estate financing does not affect liquidity risks of the conventional banks, increasing short-term FS stability and financing specialization may increase their long-term liquidity risk. As the liquidity risk behavior, to some extent, differs between the two banking systems, we recommend the regulatory bodies and market players to develop a separate liquidity risk management framework for conventional and Islamic banking institutions.

Recent resurgence of interest in understanding the transmission mechanism of monetary policy focuses on two main channels of explanation, i.e. the money and credit channel. This paper investigates a version of the credit channel, i.e. the bank-lending channel for the Malaysian economy. The bank-lending channel assigns a critical role for the supply of bank loans in transmitting the effect of monetary policy on real economic activities. The study analyzes the effect of monetary policy on the ability and willingness of Malaysian banks to issue loans with respect to the development in the open financial market. Specifically it argues on the changes of the pattern of influence as progress in the open financial market takes place. A multivariate system analysis of vector auto regression (VAR) is used. The results show that prior to the progress in open financial market, the monetary authority has a direct influence on supply of loans of banks. However, this direct influence lessens as the open financial market develops. Loans are more affected by interest rates spread that dictates conditions in open financial markets. Thus, the ability of the monetary authority to steer real economic activities is subjected to development in the financial market.

This paper investigates the effect of financial inclusiveness on economic growth in selected developed and developing countries (63 countries) for the years of 2014 and 2017. The level of financial inclusiveness for each country is calculated using a new construction of the financial inclusion index. The role of financial inclusiveness on economic growth is subsequently estimated using a cross-sectional threshold regression technique. The main findings revealed that there is a threshold effect of the financial inclusiveness-growth nexus, which means that financial inclusiveness exhibits a non-monotonic positive relation with economic growth. The positive effect is more pronounced at a high level than in the low level of financial inclusion index. These new findings should motivate policymakers and the banking sector in each country to exert greater effort in raising the level of financial inclusion in stimulating sustainable economic growth.

This paper aims to analyze the effect of partnership financing on bank efficiency. Partnership financing, which has similar concept with venture capital, refers to the equitable sharing of risks and profits between the client and bank. By employing output distance function on Malaysian and Indonesian Islamic bank over 1996 to 2012, we estimate bank efficiency score using Stochastic Frontier Approach and examine its determinants. Our results show that banks with partnership financing are more efficient than other banks. Banks with low capital risk coupled with large amount of partnership financing tend to be more efficient. However, when estimating the probability of crises using an early warning system, banks with high partnership financing appear to be less efficient during crises. The results suggest that the use of partnership financing improves efficiency, especially for banks with low capital risk except during crisis.

This paper investigates the effect of financial inclusion on a firm's growth (889 firms) in the ASEAN-5 (Malaysia, Thailand, Philippines, Indonesia, and Vietnam) countries using a cross-section threshold estimation technique. This paper showed a non-monotonic effect on financial inclusion-firm's growth nexus. The impact of financial inclusion on firm growth is significantly negative after a certain threshold point is reached. These findings suggest that the firm's owner and banking institutions should deepen their financial inclusion efforts and limit credit access distribution within the optimum value or threshold level.

This study examines the relationship between financing structure and bank liquidity risk. We compare the findings between Islamic and conventional banks for the case of Malaysia. We adopt four measures to represent financing structure; namely 1) real estate financing, 2) financing concentration, 3) stability of short-term financing structure and 4) stability of medium-term financing structure. Two BASEL III liquidity risk measures are tested; namely, liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR) to measure short- and long-term liquidity risk, respectively. Based on panel data regression comprising 27 conventional and 17 Islamic banks from 1994 to 2014, our findings show that real estate financing and stability of short-term financing structure for Islamic banks are positively related to both liquidity risk measures. This implies that an increasing number of real estate financing and a stable short-term financing structure may increase Islamic banks’ short- and long-term liquidity risks. However, although real estate financing does not affect conventional banks’ liquidity risks, a stable short-term financing structure and increasing financing concentration can positively influence bank long-term liquidity risk. Our findings shed light crucial policy implications for regulatory bodies and market players in the context of liquidity risk management framework as well as the need to develop a separate framework between conventional and Islamic banking institutions.

The cost of equity is a measure of the required return by investors. It is desirable for firms, especially banks, to lower the cost of equity. There are a number of factors related to the quality of information disclosed that could influence the cost of equity. The accounting regulators aim to improve the quality of information by requiring assets to be valued at fair value. However the application of fair value accounting potentially increases information asymmetry, especially if fair value is estimated and subjected to the judgment of the preparers of financial statements. This asymmetric information problem potentially lowers the information quality and increases investors’ estimation risk and thus influences the cost of equity capital. Therefore, this research investigates the effect of fair value accounting on the cost of equity capital for a sample of Asian banks since banks hold a relatively larger proportion of assets at fair value. Using the generalized method of moment model for dynamic panel data, this research finds significant and positive relationship between assets at fair value and the cost of equity. The results found are similar for both quoted and unquoted assets. Thus although to regulators, fair value accounting provide relevant and timely information to investors, assets at fair value are perceived to be risky and as a consequence investors require higher returns. Keywords: Fair value; cost of equity; information asymmetry; information quality ABSTRAK Kos ekuiti adalah ukuran pulangan yang dikehendaki oleh pelabur. Adalah wajar untuk firma, terutamanya bank, merendahkan kos ekuiti. Terdapat beberapa faktor yang berkaitan dengan kualiti maklumat yang dizahirkan yang boleh mempengaruhi kos ekuiti. Pengawal selia perakaunan bertujuan meningkatkan kualiti maklumat dengan memerlukan aset dinilai pada nilai saksama. Walau bagaimanapun pemakaian perakaunan nilai saksama berpotensi meningkatkan maklumat tak seimbang, terutamanya jika nilai saksama dianggarkan dan tertakluk kepada budi bicara penyedia penyata kewangan. Masalah maklumat tak seimbang berpotensi mengurangkan kualiti maklumat dan meningkatkan risiko penganggaran pelabur dan dengan itu mempengaruhi kos ekuiti. Oleh itu, kajian ini mengkaji kesan perakaunan nilai saksama pada kos modal ekuiti untuk sampel yang terdiri daripada bank Asia oleh kerana bank memegang sebahagian yang agak lebih besar aset yang dinilai saksama. Dengan kaedah masa umum untuk data panel dinamik, kajian ini mendapati hubungan yang signifikan dan positif antara aset dinilai saksama dan kos ekuiti. Dapatan kajian adalah sama untuk kedua-dua aset yang disebut harga dan aset yang tidak disebut harga. Oleh itu, walaupun kepada pengawal selia, perakaunan nilai saksama menyediakan maklumat yang relevan dan tepat pada masanya kepada pelabur, aset yang dinilai saksama dilihat sebagai berisiko dan akibatnya pelabur menghendaki pulangan yang lebih tinggi. Kata kunci: Nilai saksama; kos ekuiti; asimetri maklumat; kualiti maklumat

Subjectarea The case is suitable for use in the topics related to the functions and roles of Islamic pawn-broking and the Islamic risk management framework. Studylevel/applicability The case is designed for undergraduate and postgraduate students taking courses in Islamic Banking, Islamic Finance and Risk Management for Islamic Banking Institutions. Case overview This case is meant to explain the mechanics of pawn-broking (Ar-Rahnu) in Islam as well as to understand the risk management of Ar-Rahnu in the bank. Ar-Rahnu is discussed, in general, from the perspective of muamalat and then is related to the financing service offered through Ar-Rahnu scheme at Al-Qamari Bank Berhad (a disguised bank). Ar-Rahnu means making an asset as a security or collateral for a debt. The collateral will be used to settle the debt when the debtor is in default. It may also be known as borrowing with either collateral or pawn-broking. In Al-Qamari Bank Berhad, gold and jewellery are the subject of collateral for Ar-Rahnu. In return, customers will get the cash based on the margin of loan with regards to the current market value of gold/jewellery as determined by the bank. The operation of Ar-Rahnu is discussed in Exhibit 1, while the risk management of Ar-Rahnu is discussed in Exhibit 2. Expectedlearning outcomes The learning outcomes include: to identify a problem and issue related to Ar-Rahnu; to evaluate the modus operandi of Ar-Rahnu; to analyze the risk management practices of Ar-Rahnu; and to develop decision criteria on whether Ar-Rahnu in Al-Qamari bank is Shariah-compliant or not. Supplementarymaterials Teaching notes are available for educators only. Please contact your library to gain login details or email support@emeraldinsight.com to request teaching notes.

Subject area The case is suitable for use in the topics related to the functions and roles of hedging and the Islamic derivatives/hedging instruments. Study level/applicability The case is designed for undergraduate students, taking courses in Islamic Banking, Islamic Finance and Risk Management for Islamic Banking Institutions. Case overview This case describes the theory and application of Islamic Cross Currency Swap (ICCS) in the market. Having this understanding enables case analysts to understand the functions and roles of hedging and the Islamic derivatives or hedging instruments of ICCS comprehensively. The case begins with Yusof, the new finance officer of Al-Yemeni Sdn. Bhd to analyse the permissibility of hedging and derivatives to hedge against currency fluctuations from Islamic perspective. Yusof had to complete the report before the Board of Director's quarterly meeting, which was within a week. Having in mind that the company's mission was to be a Shariah-compliant stock by 2012, Yusof was responsible for ensuring that the company was administrated in an Islamic way. Besides, he also had to ensure that the company generated income and profit as planned. In doing so, he had to strategise all possible risk exposures that could be mitigated or hedged. This case ends by giving the case analyst information on ICCS offered by Al-Rizky Bank Berhad (ARBB). In this case, Yusof had to find out whether hedging is allowed in Islam. What are the Islamic derivatives? What are the different views of Shariah scholars on various types of derivatives? What is the modus operandi of ICCS? Is the ICCS offered by ARBB Shariah compliant? What are the possible risk exposures being hedged in ICCS? Expected learning outcomes To provide exposure on the concepts of hedging from Islamic perspectives; to provide exposure on the concepts of Islamic derivatives/Islamic hedging instruments; to stimulate understanding on the modus operandi of ICCS in ARBB; and to help case analysts understand what makes the Islamic hedging instruments become Shariah compliant. Supplementary materials Teaching notes are available for educators only. Please contact your library to gain login details or email support@emeraldinsight.com to request teaching notes.

Financial considerations play a major role influencing the internationalization of firms. However, it is not clear how integrated financial factors such as cost and capital are related to the export behavior of small- and medium-sized enterprises (SMEs). The purpose of this study is to examine financial profiles of SMEs in an emerging economy by discriminating between non-exporters and exporters. Survey data from 356 SMEs in Malaysia was analyzed to see how perceived costs, internal financial resources, and external capital constraint are associated with their export status. Through a multiple logistic regression model, it is found that exporters perceive higher internal financial resources and fewer constraints in accessing external capital. They also perceive higher export costs than non-exporters. This study offers academics, entrepreneurs, and policy-makers a comprehensive understanding of financial characteristics that explain the export behavior of SMEs in developing countries.

This paper theoretically evaluates why profit–loss sharing (PLS) contracts in Islamic banking fails and its potential for improvement within the scope of the New Institutional Economic Theory (NIE). The objective of the evaluation is to draw conclusive theoretical arguments of whether Islamic banking institutions in Malaysia should act as either financial intermediaries or entrepreneurs. Further, we analyze this issue from the perspective of agency theory, financial intermediation theory and entrepreneurship theory with four economic agents in the Islamic banking sector, namely entrepreneurs, depositors, shareholders, and the Islamic banks. Specifically, the first three economic agents represent the asset (equity-based financing), liability, and equity of the Islamic banks, respectively; while the latter is the Islamic banks, which act as a separate legal entity. Finally, we suggest that PLS contracts would best be positioned if Islamic banks play the role of genuine entrepreneurs.

This paper attempts to estimate the determinants of crises on Islamic banking system during financial crises using early warning system (EWS) with particular focus on the element of profit–loss sharing. Profit–loss sharing has significant impact in reducing crisis probability experienced by the Islamic banking system. This suggests that profit–loss sharing may be considered as one of the risk mitigation techniques for bank to remain resilient during the crises. The results further show that full-fledged Islamic banks have higher chances of experiencing crises relative to the Islamic subsidiaries banks. In addition, economic freedom and overvaluation in the currency are more likely exposed to banks to the crises.

This study analyzes the impact of financing structure on Islamic banks’ insolvency risk exposure. By analyzing four models, we find that an increase in real estate financing decreases insolvency risk; however, an increasing concentration of financing structure increases insolvency risk. We discover that increasing the stability of the financing structure reduces risk in the short term, but not in the medium term. Interestingly, our findings show that the level of insolvency risk exposure during the 1997 Asian financial crisis was lower than it was for the overall period, whereas it is higher than the overall average in the ongoing global economic crisis. Thus, regulatory bodies, policymakers, and market players in the Islamic banking industry should take appropriate action to in manage the insolvency risk of Islamic banks.

Disruptive innovation is related to financial technology and known as FinTech. It includes design, delivery, and provider of financial investment services such as payments, real estate, investment, insurance/ takaful, deposits, financing, banking, saving and capital market. This study is about Adoption of Financial Technology (FinTech) in mutual fund/ unit trust investment among Malaysians: Unified Theory of Acceptance and Use of Technology (UTAUT). The study aims to identify the level of financial technology consumption in mutual fund/ unit trust among investors in Malaysia. The objectives of this research are: 1) to determine the level of awareness on FinTech application in mutual fund/ unit trust investment; 2) to examine the adoption of FinTech in mutual fund/ unit trust investment. The objectives will explore on how FinTech changes the customers in terms of to what extent Malaysians have adopted FinTech so far. The research methodology in an adoption of FinTech service in mutual fund/ unit trust was conducted through questionnaires survey. This study assists participants in financial service management to take advantage of the opportunities offered by FinTech services. Developing the effective and systematic framework is a must for FinTech service especially in mutual fund/ unit trust investment. Implementation of FinTech will provide service improvement and transformation for investment management services in future.

The student-centered learning (SCL) approach is an approach to education that focuses on learners and their needs, rather than relying upon the input of the teacher's. The present paper examines how the SCL approach is integrated as a learner-centered paradigm into finance courses offered at a business school in a research university in Malaysia. Specifically, this paper identifies how a learner-centered environment is integrated into teaching methods, learning activities and evaluation tools. Since the adoption of the SCL approach is partly to cater for the needs of the research university, the analysis of the courses is supported with responses from the respective lecturers. This study finds that the lecturers of the five courses examined have used active/interactive learning and group project approaches as standard teaching methods under the SCL approach which includes projects, class discussion and presentation. Alongside these standard methods, some of the courses use additional methods under the SCL approach, including real life experiential learning and case studies. For example, students of the Investment and Portfolio Analysis course are exposed to the real world investment decision making by investing funds in selected stocks listed on Bursa Malaysia. In terms of course evaluations, the courses place greater weight on continuous assessment based on group projects and presentations, while reduce the emphasis on examinations. Overall, implementing the SCL approach requires a careful design of the learning process, which includes the classroom setting; flexibility of the curriculum; teaching methods; evaluation policies; and course content. In general, the study demonstrates that SCL has great potential to function as an effective learning tool in an environment where the labor market demands generically skilled job candidates and in which universities are demanding further resources to be devoted to efforts relating to research and publications.

Islamic banks operate in a different manner from conventional banks, particularly in adopting profit loss sharing contracts, resulting in arguably different risks and profitability profiles. Drawing from the Islamic principle of full disclosure, stakeholder and signalling theories, this research examines whether there is a relationship between risk, profitability measures and the level of risk disclosure. Using a sample of Islamic banks in Asia, the Middle East and Europe for the period between 2006 and 2009, the results from a panel data analysis confirm a positive association between return on equity and risk disclosure. There is modest evidence of a negative association between risk (as measured by leverage and proportion of loan to total asset) and risk disclosure. The results generally support the signalling theory rather than the stakeholder theory. A major policy implication is that risk disclosure should be mandatory as voluntary disclosure cannot be expected.

Risk management is a pivotal factor for managing financial institutions. Efficient and sustainable banking activity requires managers to take all sources of instability into account and to adopt strategies against risks. The objective of the present paper is to investigate the sources of bank risks with a straightforward and comprehensive risk measurement for the East Asian region. The Z-risk index and a three-factor Capital Asset Pricing Model (CAPM) are adopted to estimate the probability of insolvency, systematic bank risks and unsystematic bank risks. The results demonstrate that banks in East Asian countries are exposed to a variety of risk exposures. Also, the findings show that banks with lower unsystematic risks do not necessarily have lower insolvency risks, indicating that the sources of insolvency risk are complicated and need further research. Finally, a regional cooperation strategy among banks is suggested so that exchange rate and interest rate risks can be reduced. Keywords: East Asian banks; insolvency risk; three-factor CAPM; stock market; debt market; foreign exchange market ABSTRAK Pengurusan risko merupakan faktor penting bagi pengurusan institusi kewangan. Institusi perbankan yang efisyen dan mampan memerlukan pengurus mengambilkira semua sumber yang menyumbang kepada ketidakstabilan ekonomi. Di samping itu, kecekapan dan kelestarian bank juga bergantung kepada sejauhmana bank melaksanakan strategi untuk mengurangkan risiko. Objektif kajian ini adalah untuk melihat sumber-sumber risiko bank melalui pengukuran yang mudah dan komprehensif bagi wilayah Asia Timur. Khususnya, kajian ini menggunakan keadah indek risiko-Z dan Model Penetapan Harga Aset Modal (CAPM) tiga faktor (CAPM) bagi menganggar kebarangkalian bank untuk menjadi tidak solven serta risiko sistematik dan tidak sistematik yang dihadapi oleh bank. Hasil kajian menunjukkan bahawa institusi perbankan di wilayah Asia Timur terdedah kepada pelbagai jenis risiko. Hasil kajian juga menunjukkan bahawa bank yang mempunyai tahap risiko tidak sistematik yang rendah tidak semestinya mempunyai tahap risiko tidak solven yang rendah, seterusnya menggambarkan bahawa punca kepada risiko tidak solven adalah canggih dan rumit serta memerlukan kajian lanjut. Di samping itu, kajian ini menyarankan strategi kerjasama bank di peringkat serantau agar pendedahan risiko terhadap turun-naik kadar tukaran wang asing dan kadar faedah dapat dikurangkan. Kata kunci: Bank di wilayah Asia timur; risiko bank tidak solven; CAPM tiga-faktor; pasaran saham; pasaran hutang; pasaran tukaran asing