Title: A two-stage parametric stochastic frontier analysis (SFA) of the efficiency performance of Shari'ah compliant banks: a global evidence

Authors: Ahmad Abu-Alkheil; Ghadeer Khartabiel; Nuradli Ridzwan Shah Mohd Dali

Addresses: German Jordanian University (GJU), School of Management and Logistic Sciences, International Accounting Department, P.O. Box 35247, Amman 11180, Jordan ' German Jordanian University (GJU), School of Management and Logistic Sciences, Management Sciences Department, P.O. Box 35247, Amman 11180, Jordan ' Faculty of Economics and Muamalat, Universiti Sains Islam Malaysia (USIM), Bandar Baru Nilai, 71800, Nilai, Negeri Sembilan, Malaysia

Abstract: This paper examines the efficiency performance of 32 Islamic banks (IBs') from Asia, the Middle East, Gulf region, and Europe using the stochastic frontier analysis (SFA). Furthermore, the study utilises the ordinary least squares (OLS) approach to analyse the cause-effect relationship between bank-specific factors and banks' efficiency scores over the period from 2004 to 2014. Findings show that the majority of IBs' appear to be inefficient in terms of both generating profits and controlling costs. Banks' substantial inefficiencies are largely technical and partly scale in nature. Results suggest also that IBs' that are more technically efficient are most likely larger in size with low market-share, highly profitable, well-capitalised, supply more lending, and are less leveraged. Overall, the empirical findings reveal that not all IBs' were equally affected during the period of the global financial crisis of 2007. However, tiny observed variations are mainly due to the country-specific factors.

Keywords: efficiency; financial crisis; Islamic banks; parametric analysis.

DOI: 10.1504/AJFA.2018.090368

American Journal of Finance and Accounting, 2018 Vol.5 No.2, pp.85 - 110

Received: 06 Jul 2017
Accepted: 05 Aug 2017

Published online: 13 Mar 2018 *

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