Pappas, Vasileios and Ongena, Steven and Izzeldin, Marwan and Fuertes, Ana-Maria (2016) A survival analysis of Islamic and conventional banks. Journal of Financial Services Research, 51 (2). pp. 221-256. ISSN 0920-8550
Survival_Paper_v21_9_15_JFSR_AM.pdf - Accepted Version
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Abstract
Are Islamic banks inherently more stable than conventional banks? We address this question by applying a survival analysis based on the Cox proportional hazard model to a comprehensive sample of 421 banks in 20 Middle and Far Eastern countries from 1995 to 2010. By comparing the failure risk for both bank types, we find that Islamic banks have a significantly lower risk of failure than that of their conventional peers. This lower risk is based both unconditionally and conditionally on bank-specific (microeconomic) variables as well as macroeconomic and market structure variables. Our findings indicate that the design and implementation of early warning systems for bank failure should recognize the distinct risk profiles of the two bank types.