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Control of corruption, diversification and asset quality of Islamic and conventional banks

Author

Listed:
  • Naiwei Chen

    (Jiangxi Normal University, China)

  • Hsin-yu Liang

    (Feng Chia University, Taiwan)

  • Min-teh Yu

    (National Chiao Tung University, Taiwan)

Abstract

The study examines whether and how control of corruption (CC) influences asset quality of banks directly and indirectly through diversification. A review of banks in three Islamic countries (Indonesia, Malaysia, and Pakistan) from 2006 to 2012 reveals that CC has a positive effect on asset quality of Islamic banks only. In addition, diversification typically has a negative effect on asset quality, but such a negative effect weakens as CC becomes more effective, particularly for Islamic banks. Furthermore, the modifying effect of CC is particularly found in more corrupt countries (Indonesia and Pakistan) as opposed to a less corrupt country (Malaysia).

Suggested Citation

  • Naiwei Chen & Hsin-yu Liang & Min-teh Yu, 2016. "Control of corruption, diversification and asset quality of Islamic and conventional banks," Economics Bulletin, AccessEcon, vol. 36(3), pages 1280-1286.
    • Handle: RePEc:ebl:ecbull:eb-16-00239
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    corruption; diversification; asset quality; agency problem; Islamic banks;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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