Abstract
Islamic banks should share their profits and losses with their customers through equity financing but most of their assets are mark-up financing, which resembles loans. Theoretically, one of the reasons is Islamic banks operate in poor contracting environments where equity financing is very risky. Using fixed-effects models, we examine whether better contracting environments induce Islamic banks to shift from mark-up to equity financing. We find no evidence that contracting environments do, which means debt-like instruments will continue dominating Islamic banks’ assets in the near future.
Original language | English |
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Pages (from-to) | 545-548 |
Number of pages | 4 |
Journal | Applied Economics Letters |
Volume | 24 |
Issue number | 8 |
DOIs | |
Publication status | Published - 2017 |
Externally published | Yes |
Keywords
- contracting environments
- equity financing
- Islamic banks
- mark-up financing