The study examines the impact of economic freedom on Islamic banks’ profitability in the Middle East and North Africa (MENA) banking sectors during the period 2000–2010 using dynamic panel model. The findings suggest that greater financial freedom positively influences the profitability of Islamic banks in the MENA banking sectors, implying that lower intervention in the system increases Islamic banks’ profitability. Furthermore, the larger, more diversified and better-capitalized Islamic banks are relatively more profitable, while credit risk and expenses preference behaviour negatively impact on Islamic bank profitability as expected.
AbbasogluO.F., AysanA.F., & GunesA. (2007). Concentration, competition, efficiency, and profitability of the Turkish banking sector in the post-crisis period. Banks and Bank Systems, 2(3), 106–115.
2.
AlbertazziU., & GambacortaL. (2009). Bank profitability and the business cycle. Journal of Financial Stability, 5(4), 393–309.
3.
ArellanoM., & BondS. (1991). Some Tests of specification for panel data: Monte Carlo Evidence: An application to employment equations. Review of Economic Studies, 58(2), 277–97.
4.
AthanasoglouP.P., BrissimisS.N., & DelisM.D. (2008). Bank specific, industry specific and macroeconomic determinants of bank profitability. Journal of International Financial Markets, Institutions and Money, 18(2), 121–136.
5.
BashirA.H.M. (1999). Risk and profitability measures in Islamic banks: The case of two Sudanese banks. Islamic Economic Studies, 6(2), 1–24.
6.
BashirA.H.M. (2001). Assessing the performance of Islamic banks: Some evidence from the Middle East. Paper presented at the American Economic Association Annual Meeting, New Orleans, Louisiana.
7.
BaumC.F., CaglayanM., & TalaveraO. (2010). Parliamentary election cycles and the Turkish banking sector. Journal of Banking and Finance, 34(11), 2709–2719.
8.
Ben NaceurS., & GoaiedM. (2008). The determinants of commercial bank interest margin and profitability: Evidence from Tunisia. Frontiers in Finance and Economics, 5(1), 106–130.
9.
BergerA.N. (1995). The relationship between capital and earnings in banking. Journal of Money, Credit and Banking, 27(2), 432–456.
10.
BergerA.N., BonimeS.D., CovitzD.M., & HancockD. (2000). Why are bank profits so persistent? The roles of product market competition, information opacity and regional macroeconomic shocks. Journal of Banking and Finance, 24(7), 1203–1235.
11.
BergerA.N., HanweckG.A., & HumphreyD.B. (1987). Competitive viability in banking: Scale scope and product mix economies. Journal of Monetary Economics, 20(3), 501–520.
12.
BerggrenN. (2003). The benefits of economic freedom: A survey. Independent Review, 8(2), 193–211.
13.
BlundellR., & BondS. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87(1), 115–143.
14.
BlundellR., & BondS. (2000). GMM estimation with persistent panel data: An application to production functions. Econometric Reviews, 19(3), 321–340.
15.
BoydJ., & RunkleD. (1993). Size and performance of banking firms: Testing the predictions theory. Journal of Monetary Economics, 31(1), 47–67.
16.
BoydJ.H., & de NicoloG. (2006). The theory of bank risk taking and competition revisited. The Journal of Finance, 60(3), 1329–1343.
17.
ButtonK.J., & Weyman-JonesT.G. (1992). Ownership structure, institutional organization and measured x-efficiency. The American Economic Review, 82(2), 439–445.
18.
CihakM., MaechlerA., SchaeckK., & StolzS. (2009). Who disciplines bank managers?Working Paper, International Monetary Fund.
19.
De NicoloG., BartholomewP., ZamanJ., & ZephirinM. (2003). Bank consolidation, internationalization, and conglomeration: Trends and implications for financial risk. Financial Markets, Institutions & Instruments, 13(4), 173–217.
20.
DeYoungR., & RiceT. (2004). Non-interest income and financial performance at US commercial banks. Financial Review, 39(1), 101–127.
21.
DoganE., & FaustenD.F. (2003). Productivity and technical change in Malaysian banking: 1989–1998. Asia-Pacific Financial Markets, 10(2–3), 205–237.
22.
EichengreenB., & GibsonH.D. (2001). Greek banking at the dawn of the new millennium. Discussion Paper, Center of Economic and Policy Research.
23.
El-GamalM.A., & InanogluH. (2004). Islamic banking in Turkey: Boon or bane for the financial sector. Proceedings of the Fifth Harvard University Forum on Islamic Finance. Cambridge: Center for Middle Eastern Studies, Harvard University.
24.
El-GamalM.A., & InanogluH. (2005). Efficiency and unobserved heterogeneity in Turkish banking. Journal of Applied Econometrics, 20(5), 641–664.
25.
Garcia-HerreroA., GavilaS., & SantabarbaraD. (2009). What explains the low profitability of Chinese banks?Journal of Banking and Finance, 33(11), 2080–2092.
26.
GilbertR. (1984). Bank market structure and competition: A survey. Journal of Money, Credit and Banking, 16(4), 617–645.
27.
GoddardJ., MolyneuxP., & WilsonJ. (2004). Dynamic of growth and profitability in banking. Journal of Money, Credit and Banking, 36(6), 1069–1090.
28.
GoddardJ., MolyneuxP., & WilsonJ.O.S. (2001). European banking: Efficiency, technology and growth. New York: John Wiley and Sons.
29.
HassanM.K. (2006). The x-efficiency of Islamic banks. Islamic Economic Studies, 13(1–2), 49–77.
30.
HassanM.K., & BashirA.H.M. (2003). Determinants of Islamic banking profitability. Paper Presented at the 10th ERF Annual Conference, 16–18December, Morocco.
31.
HassanM.K., & HusseinK.A. (2003). Static and dynamic efficiency in the Sudanese banking system. Review of Islamic Economics, 14, 5–48.
32.
HawtreyK., & LiangH. (2008). Bank interest margins in OECD countries. The North American Journal of Economics and Finance, 19(3), 249–260.
33.
HayakawaK. (2007). Small sample bias properties of the system GMM estimator in dynamic panel data models. Economics Letters, 95(1), 32–38.
34.
HeckelmanJ.C., & StroupM.D. (2000). Which economic freedoms contribute to growth?KYKLOS, 53(4), 527–544.
35.
HirtleB.J., & StirohK.J. (2007). The return to retail and the performance of US banks. Journal of Banking and Finance, 31(4), 1101–1133.
36.
HolmesK.R., FeulnerE.J., & O’GradyM.A. (2010). 2010 index of economic freedom. Washington, DC: The Heritage Foundation.
37.
HusseinK.A. (2003). Operational efficiency in Islamic banking: The Sudanese experience. Working Paper, Islamic Research and Training, Institute (IRTI), Islamic Development Bank.
38.
IsikI., & HassanM.K. (2003). Efficiency, ownership and market structure, corporate control and governance in the Turkish banking industry. Journal of Business Finance and Accounting, 30(9–10), 1363–1421.
39.
KasmanA., TuncG., VardarG., & OkanB. (2010). Consolidation and commercial bank net interest margins: Evidence from the old and new European Union members and candidate countries. Economic Modelling, 27(3), 648–655.
40.
KennedyP. (2008). A guide to econometrics. Malden, Massachusetts: Blackwell Publishing.
41.
KosmidouK. (2008). The determinants of banks profits in Greece during the period of EU financial integration. Managerial Finance, 34(3), 146–159.
42.
KosmidouK., & ZopounidisC. (2008). Measurement of bank performance in Greece. South Eastern Europe Journal of Economics, 6(1), 79–95.
43.
KosmidouK., PasiourasF., & TsaklanganosA. (2007). Domestic and multinational determinants of foreign bank profits: The case of Greek banks operating abroad. Journal of Multinational Financial Management, 17(2–3), 1–15.
44.
MillerS.M., & NoulasA. (1997). Portfolio mix and large bank profitability in the USA. Applied Economics, 29(4), 505–512.
45.
MolyneuxP., AltunbasY., & GardenerE.P.M. (1996). Efficiency in European banking. Chichester: John Wiley & Sons.
46.
PasiourasF., & KosmidouK. (2007). Factors influencing the profitability of domestic and foreign commercial banks in the European Union. Research in International Business and Finance, 21(2), 222–237.
47.
PerryP. (1992). Do banks gain or lose from inflation. Journal of Retail Banking, 14(2), 25–40.
48.
RivardR.J., & ThomasC.R. (1997). The effect of interstate banking on large bank holding company profitability and risk. Journal of Economics and Business, 49(1), 61–76.
49.
SarkerM.A.A. (1999). Islamic banking in Bangladesh: Performance, problems, and prospects. International Journal of Islamic Financial Services, 1(3), 15–36.
50.
SaundersA., StrockE., & TravlosN.G. (1990). Ownership structure, deregulation, and bank risk taking. Journal of Finance, 45(2), 643–654.
51.
ShortB.K. (1979). The relation between commercial bank profit rate and banking concentration in Canada, Western Europe and Japan. Journal of Banking and Finance, 3(3), 209–219.
52.
SpathisC., KosmidouK., & DoumposM. (2002). Assessing profitability factors in the Greek banking system: A multicriteria methodology. International Transactions in Operational Research, 9(5), 517–530.
53.
StaikourasC., & WoodG. (2003). The determinants of bank profitability in Europe. Paper presented at the European Applied Business Research Conference, 9–13June, Venice.
54.
StirohK.J., & RumbleA. (2006). The dark side of diversification: The case of US financial holding companies. Journal of Banking and Finance, 30(8), 2131–2161.
55.
SufianF., & NoorM.A.N. (2012). Determinants of bank performance in a developing economy: Does bank origins matters?Global Business Review, 13(1), 1–23.
56.
ThakorA. (1987). Discussion. Journal of Finance, 42(3), 661–663.
57.
TregennaF. (2009). The fat years: The structure and profitability of the US banking sector in the pre-crisis period. Cambridge Journal of Economics, 33(4), 609–632.
58.
WilliamsB. (2003). Domestic and international determinants of bank profits: Foreign banks in Australia. Journal of Banking and Finance, 27(6), 1185–1210.
