Titi Dewi Warninda, Rofikoh Rokhim and Irwan Adi Ekaputra
Pertanika Journal of Tropical Agricultural Science, Volume 27, Issue S2, December 2019
Keywords: Earnings volatility, Islamic banks, Mudarabah financing, Musharakah financing
Published on: 11 November 2019
Profit-loss sharing (PLS) financing comprises Musharakah and Mudarabah ought to be the main form of Islamic banks financing. However, based on Southeast Asia, South Asia, and the Middle East Islamic banks data, this research shows that the proportion of PLS financing is still deficient compared to debt financing. Moreover, it shows that only Musharakah financing displays a significant linear and nonlinear (inverse U-shape) association with Islamic bank earnings volatility. The empirical estimates suggest that earnings volatility is maximized when the proportions of Musharakah financing is about 31%. Increasing this type of financing beyond 31% may lower earnings volatility.
ISSN 1511-3701
e-ISSN 2231-8542