The holding behavior of Shariah financial assets within the global Islamic financial sector: A macroeconomic and firm-based model

• Published in: Global finance journal 2021-11, Vol.50, p.100557, Article 100557
• Main Authors: Kok, Seng Kiong, Filomeni, Stefano
• Format: Article
• Language: English
• Subjects: Asset management; Firm-based dynamics; Islamic finance; Islamic financial institutions; Macroeconomic dynamics; Shariah assets
• ISSN: 1044-0283; 1873-5665
• DOI: 10.1016/j.gfj.2020.100557

The extant academic literature has shown the distinct differences between Islamic and conventional financial institutions along either a performance or efficiency front with an attribution to these differences to the adoption of a religio-financial framework merging the principles of economics and finance with those of Shariah. However, these empirical estimations do not entirely capture the religio-financial framework since they use performance and efficiency measures that include both conventional and Shariah transactions. We address this gap in the literature by examining the dynamics influencing the holding behavior of Shariah assets by Islamic financial institutions (IFIs). Given that the a priori hypothecation of Shariah asset holding behavior is relatively nebulous, we draw extensively from the traditional macroeconomic and managerialist literature in building our econometric model. By exploiting a unique and proprietary dataset comprising 140 Islamic financial institutions operating in 16 different countries over the time period 2011–2015, we find that economic wealth, market liquidity and the institutional board size are robust and positive linear predictors of IFI Shariah assets' holding behavior, thus providing support for the traditional macroeconomic theory of asset demand and firm-based agency theory. •Conceptualizations of Shariah asset holding behavior are, a priori, nebulous.•We utilize a macroeconomic and managerialist lens for our conceptualization.•Macroeconomic wealth and liquidity are positive predictors of Shariah asset holdings.•Institutional corporate boards have an influence on Shariah asset holdings.•Shariah supervisory boards have an effect on the ratio of Shariah to total assets.