Investment account holders’ market discipline in GCC countries

Abstract

Purpose The purpose of this study is to investigate the two components of market discipline, investment account holder (IAH) monitoring and the consequent reaction of the Islamic banks in GCC countries for the 2004–2013 period, including the recent financial crisis of 2008. Design/methodology/approach We address the research question that Investment Account holders (IAH) in GCC countries suc as Kingdom of Saudi Arabia (KSA), Bahrain and United Arab Emirates (UAE) monitor their banks. Regression analysis was used to examine the dependence level of profit-sharing investment account (PSIA) growth rate on bank risk characteristics (CAMEL variables). Then, the reaction of banks by regression influencing CAMEL variables of one-lagged period on PSIA growth rate was verified. Findings The results provide evidence of the first component of market discipline, i.e. the IAH monitoring, in KSA, Bahrain and UAE. The common result to the three countries is that market actors are concerned with accounting information on capital adequacy. However, in UAE, they are also interested in assets performance, whereas they look more at earnings in Bahrain. The results show evidence of the second component in Bahrain; the bank reaction to IAH monitoring and subsequently IAH discipline in Bahrain. Finally, the results do not support any impact of the financial crisis. Research limitations/implications The sample size is small although it is constituted by banks having a sufficient number of observations. Practical implications This study highlights the importance of IAH discipline, which would help prudential bank monitoring by regulators and wealth development for both investors and managers. It should increase the disclosure of relevant information as for the part of effective accountability of Islamic banks’ governance. Originality/value This study contributes to the literature on market discipline by dealing with Islamic banks. It is one of the very few studies to investigate IAH discipline in Islamic banks and the second component of market discipline, i.e. the influence of monitoring on banks.

Market discipline in the behavioral finance perspective: a case of Sharia mutual funds in Indonesia

“…In the context of Islamic banking, Aysan et al (2017) stated that the profit and loss sharing framework may contribute to market discipline. This is supported by Alaeddin et al (2017) and Guermazi (2020), who found that market discipline existed in profit-sharing investment account holders.…”

“…Islamic banks (Alaeddin et al, 2017;Guermazi, 2020) and conventional banks (Calomiris and Jaremski, 2019;Eisenbach, 2017;Haq et al, 2016;.…”

Do depositors discipline the banking sector? Evidence from an emerging economy

“…This research model is based on the market discipline theory, which has two components, namely, actions of investors and behavior of banks (Guermazi, 2020). Investors assess bank performance and take the actions needed which makes banks alter their behavior (Bliss and flannery, 2002; Flannery, 2001).…”

Characteristics of the Sharia Supervisory Board (SSB) And Investment Account Holders (IAH) To Islamic Social Responsibility Disclosure (ISRD) In Islamic Banks

“…When the IAH rises, Islamic banks allocate IAH funds to profitable investments (profit-sharing investment account/PSIA). So, shoppers can benefit from the IAH profit sharing and maintain their IAH in affiliated Islamic banks (AlShattarat & Atmeh, 2016;Ameer et al, 2012;Guermazi, 2020;Magalhaes & Al-Saad, 2013). This activity does not affect the allocation of funds for ISRD, so the quality of ISRD is not affected.…”

“…Because of this research, the researcher considers the SSB characteristic variables and the IAH ratio can affect the quality of ISRD. It is due to the strategic position of SSB, which is equivalent to the board of commissioners (Meutia et al, 2019), and the IAH ratio is the ratio of savings deposits owned by customers as stakeholders of Islamic banks (Farook et al, 2011;Guermazi, 2020;Putri & Mardian, 2020).…”