Bank risk-taking and legal origin: What do we know about dual banking economies?

Mohsin Ali, Nafis Alam, Mudeer Ahmed Khattak, Wajahat Azmi

Research output: Contribution to journalArticleResearchpeer-review

5 Citations (Scopus)

Abstract

This paper investigates the relationship between legal origin and banks’ risk-taking be-havior. We employ GMM to study a sample of both Islamic and conventional banks from 14 dual banking economies from 2005–2018. Our findings can be summarized as follows: (a) bank risk-taking and legal origin are negatively related in our sample countries, (b) Islamic banks are more stable in English law (common) countries, and (c) bank regulations have a differential effect on Islamic and the conventional banks. Our overall findings align with the dark side of the legal framework, indicating a robust legal framework to encourage bank risk-taking. The results have several implications for shareholders, regulators, and other key stakeholders.

Original languageEnglish
Article number224
Number of pages13
JournalJournal of Risk and Financial Management
Volume15
Issue number5
DOIs
Publication statusPublished - May 2022

Keywords

  • bank risk-taking
  • dual banking economies
  • Islamic banks
  • legal origin

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