This thesis investigates the effect of income diversification on the performance of Islamic banks in Malaysia, Saudi Arabia, Kuwait, United Arab Emirates, Bahrain and Qatar where they operate alongside conventional banks in a dual banking system. Accounting data was drawn from 68 conventional and 42 Islamic banks from 1997 to 2009. The main focus was to see whether a greater reliance on non-financing income impacts on earnings quality and if so, how this may vary between Islamic and conventional banks. Commission and fee income, trading income and other non-financing income constitute non-financing income. For conventional banks, this is known as non-interest income, but in Islamic banking the payment and receipt of interest is prohibited so this ‘other income’ is referred to as non-financing income (that is, income unrelated to deposit-taking and loan granting). Islamic banks operate as universal banks and offer retail and wholesale financing plus investment banking services. Using various empirical approaches, we find that non-financing income positively influences banks’ risk-adjusted performance on a net overall impact basis, after taking into account, the consequential indirect impact arising from changes in income diversification (provided that the increase in non-financing income is carried out up until the optimal share of non-financing income of 0.5). Greater income diversification on its own, increases income volatility and this negatively impacts bank’s risk-adjusted performance, more so, when income diversification exceeds the optimal score of 0.5. Islamic banks are found to be more focused on deposit/loan financing and less diversified in terms of non-financing income activities compared to conventional banks. We find that Islamic banks appear to be less susceptible to earnings volatility given their lower diversified income source. Islamic banks have lower profitability (on average) on a risk-adjusted basis when compared to their conventional counterparts.

Purpose: The purpose of this research study is to investigate the extent to which banks are using risk management practices in dealing with various risks and to compare risk management practices between Islamic and Conventional banks operating in Pakistan. Methodology: This is an empirical research study which has employed quantitative research methods. This study has used two sources of data, i.e. primary and secondary data. Secondary data is collected by using content analysis through annual reports of five Islamic and conventional banks for the six year time period from 2008 to 2013. The content analysis was performed by using frequency analysis and un-weighted index scoring. And primary data was collected through questionnaire from the senior managers, risk managers and CRO of Islamic and conventional banks. The sample size was consisting of 150 respondents from banks. The data was analysed by using descriptive statistics, regression analysis and Mann-Whitney U test. Findings: Islamic banks are found to be significantly different from their conventional counterparts in risk identification, risk management practices, liquidity risk analysis and risk governance. Moreover, risk identification, risk assessment and analysis, credit risk analysis and risk governance are most influencing and contributing variables in risk management practices of banks operating in Pakistan. Also, credit, liquidity, market and operational risk are found to be the most important risks faced by both conventional and Islamic banks. Practical Implication: Considering the importance of risk management practices in Islamic and conventional banks; Bankers, investors, regulators, and policymakers are likely to benefit from the results of the study as a guide, when developing and reforming the existing risk management practices. Originality: This study has extended the risk management practices model of banks by incorporating two more variables, i.e. liquidity risk analysis and risk governance into the model. Also, it is adding value methodologically, as data triangulation is used to draw a valid inference. So, this study will add value to literature and will be useful for Islamic banks, conventional banks, practitioners as well as for academic point of view.

Cette thèse analyse les conséquences de l’intégration d’un milieu bancaire conventionnel pour une banque islamique. Elle est composée de trois chapitres. Un premier traité de la conformité Sharia des banques islamiques. Cette conformité est assurée par un comité de supervision éthique. Nous détaillons le rôle et les tâches de ce comité de supervision éthique et montrons comment les contraintes réglementaires internationales ainsi que la pénurie éventuelle de personnels compétents pour alimenter ces sharia boards incitent la banque islamique à externaliser ce contrôle de conformité Sharia. En se proposant sur modèle théorique inspiré de Kornai, Maskin and Roland (2003), ce premier chapitre examine ainsi l'impact de l'externalisation de ce comité sur le business model de la banque islamique. Le deuxième chapitre est essentiellement empirique : nous comparons l'efficacité des deux modèles de banque, l’un internalisant (l’autre externalisant) le processus d’examen/ validation de la conformité Sharia. Pour procéder à cette étude empirique, nous examinons un échantillon d'une centaine de banques qui se divise en deux groupes de banques un premier qui externalise le contrôle de conformité Sharia et le deuxième l'internalise. Nous montrons que les banques sont plus efficaces lorsqu'elles externalisent ce processus de conformité. Finalement, un troisième chapitre traite la question de la création de liquidité au sein des deux banques, conventionnelle et islamique. Dans ce chapitre nous développons un modèle théorique inspiré de Diamond (2007) et nous comparons la création de liquidité de ces deux banques. Nous mettons en évidences les contraintes qui pèsent sur la banque islamique, elles se manifestent dans la structure du bilan des banques islamiques, un bilan qui présente un volume important d'actifs tangibles. On montre que la structure de ce bilan limite la possibilité pour les banques islamiques de concurrencer les banques conventionnelles et ainsi remet en cause leur capacité à intégrer un milieu bancaire conventionnel. / This dissertation analyses the consequences of the integration of an Islamic bank into a conventional banking environment. The dissertation is composed of three chapters. The first examines the Islamic banks' compliance, which is ensured by a supervisory ethical committee. We examine the role and the tasks of this committee in detail, showing how international regulatory constraints, as well as a general lack of individuals with the required skills to sit on the Sharia boards, provide incentives for the Islamic bank to outsource the monitoring of Sharia compliance. Basing our study on a theoretical model, inspired by Kornai, Maskin and Roland (2003), this first chapter analyses how the outsourcing of this committee has an impact on the business model of the Islamic bank. The second chapter is largely empirical; we compare the effectiveness of two bank models, one in which the Sharia compliance validation process is internal, and one in which it is external. To test this empirical study, we analyze a sample of around 100 banks which are divided into two groups, one which outsources the Sharia compliance and monitoring and one which internalizes this process. We show that banks are more effective when they outsource the compliance monitoring process. Finally, the third chapter approaches the question of liquidity creation within two types of bank: Islamic and conventional. In this chapter, we develop a theoretical model inspired by Diamond (2007) and we compare the liquidity creation process in these two banks. We demonstrate the constraints that burden the Islamic bank, shown by the high volume of tangible assets in their balance sheets. We demonstrate that the structure of this balance sheet limits the possibilities for Islamic banks to compete with conventional banks, and thus brings into question their capacity to integrate a conventional banking environment.

The aim of this study is to understand and analyse the relationship between corporate governance (CG) and banking governance (BG) in Conventional and Islamic banking systems. The reason for choosing this topic was because the regulations and banking systems within Conventional banks are differently in comparison to Islamic banks, which means that their corporate governance and banking governance are influenced by different mechanisms and therefore regulated differently. Since Conventional banks stands for a small amount of Islamic banks in their markets and Islamic countries do have Conventional banks in theirs, made this topic a good case study. Furthermore is Sweden a Conventional country where they don’t offer Islamic financial services and the UK is a Conventional country where they do, which was an interesting fact since both of them are European countries with similar regulations. The author of this thesis chose qualitative, semi-structured interviews, where six persons: three from Sweden and three from the UK stood for answers toward their banking systems. Since these respondents were standing on a high position within their organizations did they have the knowledge needed to answer the questions asked. The result showed that the relationship between CG and BC in Conventional and Islamic banking systems have an impact in the way different types of banks operate. Identifying the Conventional and Islamic banks differences and assessing on how the Corporate Governance and Banking Governance do operate solves the complexity in the system. Based on the findings, countries that are applying the Conventional system need to expand their regulations and mechanisms so that other systems could operate without a need for changes in their own. They also need to expand their knowledge, where the population needs to be familiar with other banking systems and services as well.

Islamic Banking, the Shariah (Islamic law) compliant banking for Muslims, is unarguably at the nascent stage of its development as a financial competitor and alternative to the conventional interest – based banking system practiced around the world. This thesis looks into the principles of Islamic banks of Pakistan and focusing three Islamic Banks in Pakistan. The thesis analyzes the findings of three banks made by interviews and compare with the conventional banking system, to check that are the principles different or same. This thesis is qualitative in nature, based on theoretical and empirical findings.

This study investigates the determinants of adopting accounting standards (AAOIFI, IFRS or local standards) in thirty different countries with an Islamic banking industry. This study also examines the link between corporate governance disclosure, corporate social responsibility disclosure, and the adoption of accounting standards in the Islamic banking industry (IBI) as consequences for the adoption process. To the best of my knowledge, this is the only study that empirically investigates this topic. Environmental determinism theory is used as a framework to develop and test for explanations of the accounting standards used in countries where Islamic banks operate. Using multinomial logistic analysis to investigate the determinants of adopting any of the accounting standards sets (AAOIFI, IFRS, LOCAL), I find that both internal environmental factors, such as the level of education and the sophistication of the financial press, as well as enforcement factors, such as the existence of a centralised Sharia committee, are likely to have an impact on the accounting standards adopted by the Islamic banking industry. In regard to the second objective of examining the link between corporate governance disclosure, corporate social responsibility disclosure, and the adoption of accounting standards in the Islamic banking industry (IBI), multivariate regression was used to analyse the data. The results present that: there is an association between corporate governance disclosure and social responsibility disclosure with the accounting standard adopted in the country. The analysis also presents that both types of disclosure within the IBI is associated with the other non-accounting institutions in the country as openness to economy, political stability, and enforcement mechanisms such as a centralised Sharia committee in the country. This result implies that the specific accounting standards adopted by the Islamic banking industry are subject to the internal environment of, and the enforcement mechanisms imposed by, the country. This result further suggests that accounting institutions such as accounting standards adoption and non-accounting institutions are associated with disclosure practices in IBI. Therefore, a conclusion can be drawn that adoption of accounting standards within the Islamic banking industry is an important accounting institution which can be determined by other institutions, as well as affecting disclosure practices in the industry.

The main aim of this research is to analyse the CSR disclosure and examine its determinants and consequences among Islamic banks in the GCC (Gulf Countries Council). In fulfilling the research aims, annual reports of GCC Islamic banks for the period 2010- 2014 are analysed using manual content analysis, which involves 195 observations of 39 Islamic banks. The CSR disclosure index is constructed based on 11 dimensions using AAOIFI standard no 7, 2010. An ordinary least square (OLS) regression is used to examine the determinants and consequences of CSR disclosure in the sample Islamic banks. The analysis shows a very low level of CSR disclosure (39.9%) among the sample Islamic banks. Using CG (corporate governance) mechanisms to measure the determinant of CSR disclosure, this current study finds a significant positive association between CSR disclosure and the size of the boards of directors of the sample Islamic banks. It provides evidence that stronger corporate governance is associated with a higher level of CSR disclosure. This current study finds a negative significant relationship of CEO. Duality and AC Size and CSR disclosure. However, the results show no significant association between CSR disclosure and other corporate governance variables. To examine the economic consequences of CSR disclosure, the study uses three different proxies of firm value (MTBV, Market Capitalization and Tobin Q). Using market capitalization proxies, this current study finds that there is a negative significant relationship between CSR disclosure and firm value. The study did not find any significant relationship between other proxies. This current study suggests that there is a need to improve the current CSR disclosure practice in GCC Islamic banks by imposing additional constraints on the board of directors’ characteristics. The results inform the global debate on the need for corporate governance reform in Islamic banks, by providing insights on the role played by corporate governance mechanisms in encouraging and enhancing CSR disclosure practice among Islamic banks.

Cette thèse de doctorat est une première tentative d'examiner si les réglementations bancaires ont le même impact sur la stabilité et l'efficience des banques islamiques que sur celles des banques conventionnelles. Suite aux nouvelles recommandations de Bâle III, nous étudions l'impact des exigences minimales en matière de fonds propres, de liquidité et de levier financier sur la stabilité et l'efficience des banques islamiques comparativement aux banques conventionnelles. Une première étude exploratoire utilise l'analyse en composantes principales (ACP), les méthodes Logit et Probit et les régressions MCO pour montrer que les banques islamiques disposent d'un capital plus élevé, qu'elles sont plus liquides, plus profitables, mais moins stables que leurs homologues conventionnelles. Une deuxième étude empirique examine la stabilité des banques islamiques et utilise la régression quantile pour montrer que les banques islamiques sont moins stables que les banques classiques. L'étude prouve également que des exigences de fonds propres renforcées améliorent la stabilité des banques islamiques les plus petites et les plus liquides, tandis que le levier financier est négativement associé à la stabilité de ce type de banques. Des contraintes de liquidité plus fortes renforcent la stabilité des grandes banques islamiques alors que l'effet est inverse pour les petites banques. Enfin, nous examinons l'efficience des banques islamiques en utilisant la méthode d'enveloppement des données (DEA). Nous constatons que les banques islamiques sont plus efficientes que les banques conventionnelles. Nous trouvons aussi que des exigences de capital et de liquidité accrues pénalisent l'efficience des petites banques islamiques très liquides, alors que l'inverse est vrai pour le levier financier. Ces résultats montrent notamment qu'en matière de réglementation du capital pour les petites banques islamiques très liquides, un choix est à opérer entre une efficience accrue ou une stabilité renforcée. / This PhD dissertation is the first attempt to examine whether banking regulations have the same impact on the stability and the efficiency of Islamic than for conventional banks. We benefit of Basel III recommendations to investigate the impact of bank capital, liquidity and leverage requirements on the stability and the efficiency of Islamic banks compared to conventional banks. A first exploratory study uses Principal Component Analysis, Logit and Probit methods, and OLS regressions and shows that Islamic banks have higher capital, liquidity, and profitability, but that they are less stable than their conventional counterparts. A second empirical study examines the stability of Islamic banks using conditional quantile regressions and proves that Islamic banks are less stable than conventional banks. It also shows that higher capital and lower leverage improve the adjusted profits of small and highly liquid Islamic banks. Liquidity is positively associated with the stability of large Islamic banks while an opposite effect is detected when small Islamic banks are examined. Finally, we study the efficiency of Islamic banks using Data Envelopment Analysis (DEA) and find that Islamic banks are more efficient than conventional banks. We also find that higher capital and liquidity requirements penalize the efficiency of small and highly liquid Islamic banks, while the opposite is true for financial leverage. These results show that concerning capital requirements for small and highly liquid Islamic banks, a possible trade-off could be found between stability and efficiency.

This study aims to investigate the determinants of efficiency, profitability and stability in the banking sector across the world over the period 2005-2012. In this study, efficiency is measured using data envelopment analysis (DEA), which is divided into technical efficiency (TE), pure technical efficiency (PTE), and scale efficiency (SE). The profitability is represented by return on assets (ROA), return on equity (ROE), and net interest margin (NIM). Furthermore, the z-score and capital ratios are the main indicators for stability. The data includes 323 banks (43 Islamic, 242 conventional, and 38 socially responsible banks [SRBs]) from around the world, covering 37 countries. The statistical methods to find the determinants are ordinary least square (OLS) and fixed effects model (FEM). The data for this study was extracted from the Bankscope and World Bank databases. According to efficiency, the DEA measures demonstrate that socially responsible banks (SRBs) are the most efficient banks. This is due to the fact that SRBs management employ minimum inputs; one of the main characteristics of SRBs is the saving of resources (inputs). In contrast, the least efficient scores are achieved by conventional banks. As conventional banks have higher interest expenses to pay. In terms of Islamic banks, the larger banks were found to be more efficient. Furthermore, lending services are important to maximise outputs effectively. Additionally, efficiency in Islamic banks is influenced significantly by earnings. Islamic banks with higher capitalisation were found to be more efficient, and new Islamic banks operate better than older banks. Regarding the macroeconomic factors, countries with better market capitalisations include more efficient Islamic banks. Based on the conventional banks’ findings, banks with a higher size performed better than the smaller sized banks. The loans profits increased the efficiency significantly. Focusing on age, the more recent banks achieve better efficiency scores. The three types of ownership (foreign, domestic, and public) reflect inverse correlations with DEA. With regards to the external variables, the wealth of the country is highly important in terms of efficiency. In addition, stock market growth supports the efficiency positively and significantly, while inflation and the global financial crisis (GFC) influenced the efficiency negatively and significantly. Concentrating on SRBs, banks with more capitals operated more efficiently than lower capitalised banks. Additionally, GDP, inflation and market capitalisation enhanced efficiency significantly. Overall, the relationship between the control of corruption and efficiency is positive and significant in Islamic, conventional and socially responsible banks. Tighter controls on corruption have led to better efficiency. Regarding the profitability, the highest ROA and ROE were attained by conventional banks. This is because the main aim for conventional banks is to achieve returns, and charging interest maximises their earnings. On the other hand, SRBs scored the lowest ROA and ROE as those banks are primarily concerned with providing social and environmental services over profits. According to NIM, Islamic banks do not have interest expenses, which can allow them to score the highest NIM measures in this study; while conventional banks have the minimum NIM ratios due to higher interest expenses. Based on the Islamic banks’ results, Islamic banking was affected positively by total assets of banks. In addition, the stable Islamic banks achieved greater profits based on the strong associations between z-score and earnings. This contradicts the relationship between profitability ratios and capital ratios, which indicate negative and significant correlations. Depending on country-specific factor, Islamic banks in higher productivity countries could not exploit the growth to gain higher profits. This results in a weakness for Islamic banks in terms of being resistant to higher inflation rates. For the conventional banks, size of bank and capital are highly important for profits. The conventional banks can concentrate on providing more loans to maximise their returns. The stability of conventional banks also has positive and significant associations with profitability ratios. Concerning the SRBs, profitability ratios are affected significantly and positively by stability (z-score) and market capitalisation growth. On the other hand, foreign, domestic and public ownerships negatively impacted the profits. According to industry-specific variables, GDP growth reduces profits significantly. For the stability, SRBs are demonstrably the most stable and resilient system against financial crisis. Accepting more deposits and attaining greater profits significantly increase the stability of all banks and lower the risk of insolvency. Overall, listed banks were found to be more efficient, profitable, and stable than unlisted banks. This study helps managers and policy makers within the banking sector to reduce costs and increase profits with lower risks. In addition, finding the positive determinants allows managers to make more decisions based on positive factors. On the contrary, through raising efficiency, profitability and stability in banking, managers can aim to avoid negative variables altogether. Finally, this study contributes to the literature in terms of adding socially responsible banks into the equation. In addition, comparing efficiency, profitability and stability simultaneously is a new method that can allow bankers to build effective strategic decisions based on the determinants.

This study explores the concept of accountability in Islamic Banks (IB), which may achieve through disclosure. It aims to measuring the bank’s disclosure levels which contains Sharia, Social and Financial (SSF) as well as determinants and consequences of this disclosure. It moreover aims to identify the gap between Islamic banks’ board and stakeholders concerned with the accountabilities priorities of IBs. To achieve these objectives the researcher conducted six empirical studies. The first three empirical studies uses content analysis to measuring compliance level with Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) standards as well as measuring the and sharia, social and financial disclosure (SSFD). It furthermore adopts Ordinary Least Squares (OLS) to identify the determinants of SSF reporting related to firm characteristics and corporate governance of Board of Directors (BOD) and Sharia Supervisory Board (SSB). The fourth empirical study uses the same method (manual content analysis) and OLS to measuring the economic consequences of SSFD on the firm value through testing the impacts of disclosure on market capitalization and return on assets. The fifth empirical study adopts questionnaire as well as Structural Equation Modelling (SEM) to measures the non-economic consequences of SSFD though surveying the perceptions of stakeholders who deal with IBs about the increasing SSFD on loyalty; trust and satisfaction. Finally, the sixth empirical study uses questionnaire to explore the consequences of SSF practices on the perceptions 600 stakeholders who deal with IBs and non-customers who do not deal with IBs. Highlighting the distinctions between economic and non-economic consequences of disclosure in the study enables the researcher to obtain greater insights into the implications of SSF reporting. Moreover, exploring accountability practices from different viewpoints (management, stakeholders and non-customers) and based on different methods (content analysis and questionnaire) allows the researcher to obtain greater insights into IBs accountabilities’ practices. This study provides several interesting findings. With regard to the disclosure and compliance levels, the study finds a variation between IBs in the number of SSFs disclosed, with a notably low level of non-financial reporting (Sharia and social). It also finds high compliance level with AAOIFI standards related to financial and Sharia reporting and low compliance levels with social reporting requirements. Concerning with the determinants of disclosure; the analysis shows positive significant association of disclosure levels with existing Sharia auditing department; auditor; size and profitability. It also finds that corporate governance mechanisms play an important role in improving SSF reporting. The analysis indicates that corporate governance mechanism of board of directors (BOD) as well as Sharia supervisory board (SSB) are the main determinants behind the disclosure levels for IBs such as SSB size, SSB reputation; BOD independence, duality in position and ownership structure. Concerned with the economic consequences of disclosure, the study finds that Sharia, social and overall disclosures have a positive impact on Firm Value (FV) based on the accounting-based measure (ROA). It moreover finds that Sharia and overall disclosure has a positive significant impact on the FV based on market-based measure (Market Capitalization). It argues that the association between disclosure and FV is sensitive to the category of disclosure and the proxy employed for FV. Consequently, the study provides evidence that the SSF disclosures not derived from the same factors, and both have a different impact on firm value. With regard to the non-economic consequences of disclosure, the results indicate that there is a significant association between disclosure and stakeholders’ trust, satisfaction, and loyalty. The results furthermore indicate that there is a partial mediating of trust and satisfaction in the relationship between disclosure and loyalty. A pyramid of IBs’ accountabilities from stakeholders’ perspectives shows the importance of Sharia, then financial and social accountability for both stakeholders and non-customers. It moreover shows that the main criterion of stakeholder’s selection of IBs was Sharia, financial then social factors. Stakeholders who deal with IBs are satisfied about the practices of these banks. Both of groups believe that IBs may guide by Sharia, financial then social objectives. The results identifies gap between the orientation of IBs’ board based on the disclosure and orientation of stakeholders and non-customers based on their perceptions towards SSF accountability. The main originality for this study is measuring SSFD for most of Islamic banks around the world from different perspectives and methods as well as identifies the main determinants and consequences of this disclosure. These results have several implications for regulators, policy makers, managers, IBs, investors, FASB and AAOIFI. For instance, the present study has revealed that disclosure of SSFs - especially non-financial ones - was limited in many annual reports as well as websites. Therefore, regulatory bodies may identify a minimum level of SSFs to publish by each IB. The study has crucial implications to how IBs may improve its Sharia compliance disclosures to create a competitive advantage. The present study is one of the first to investigate the determinants and consequences for SSF disclosure for IBs based on a holistic model. Moreover, the current study is one of the first to investigate the non-economic consequences for corporate disclosure. The current study has some limitations, in either sample or data; disclosure indices; approach; or in its research methodology, which have to consider as potential avenues for future research.