Conference Paper
Does High Liquidity Creation Reduce the Efficiency of GCC Islamic Banks? The Role of Sustainable and Governance Factors
No.
ERF_31_FN191
Publisher
ERF
Date
March, 2025
Topic
G. Financial Economics
This paper adds to the banking literature by investigating the non-linear relationship between liquidity creation and Islamic banking efficiency in one of the transition economies: the Gulf Cooperation Council (GCC) countries, thereby adding to the literature on banking. The sample contains data of 34 Islamic banks from the GCC countries for a period of 2012-2020 comprising 306 firm-year observations. This study has used the SGMM technique to address issues of endogeneity. The empirical results show the existence of a nonlinear-inverted U-shaped nexus between liquidity creation and Islamic bank efficiency, signaling the risk of excess liquidity. Besides, CSR disclosure, audit quality, SSB, and institutional quality act as powerful levers, hence curbing excess liquidity. The results are robust to alternative measures of liquidity creation and banking efficiency. To the best of my knowledge, my study is the first to investigate the nonlinear nexus between liquidity creation and Islamic bank efficiency in the specific situation of transition economies. It also provides empirical evidence to bridge the gaps in existing research. Finally, this study lists the implications for Islamic bankers and policy makers in managing excess liquidity risk and achieving best Islamic bank efficiency.
Authors
Wafa Khémiri
Assistant Professor in Finance, Faculty of Legal,...