Bankruptcy profile of the Islamic and conventional banks in Malaysia: a post-crisis period analysis

This study identified that accounting for endogeneity in bankruptcy forecasting models have been widely over-sighted. This study used Altman’s bankruptcy forecasting model to examine bankruptcy rates of the Islamic and conventional banks in Malaysia. Data for this study were collected from the post-...

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Bibliographic Details
Published in:Economic change and restructuring 2019-02, Vol.52 (1), p.67-87
Main Authors: Jan, Amin, Marimuthu, Maran, Shad, Muhammad Kashif, ur-Rehman, Haseeb, Zahid, Muhammad, Jan, Ahmad Ali
Format: Article
Language:English
Subjects:
Banking
Bankruptcy
Compliance
Crises
Development Economics
Economic crisis
Economic Growth
Economic Policy
Economics
Economics and Finance
Endogenous
Forecasting
International Economics
Islam
Islamic financing
Macroeconomics/Monetary Economics//Financial Economics
Policy making
Political Economy/Economic Systems
Power
Profitability
Regression analysis
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Summary:This study identified that accounting for endogeneity in bankruptcy forecasting models have been widely over-sighted. This study used Altman’s bankruptcy forecasting model to examine bankruptcy rates of the Islamic and conventional banks in Malaysia. Data for this study were collected from the post-crisis period 2009–2013. The results showed that the Islamic banks in Malaysia were more bankrupt as compared to the conventional banks. Hence, the claim of Islamic banks is in the stark contrast to the phenomena of being more shock-resilient to the financial crisis due to their Shariah compliance. Furthermore, the results of multiple regression analysis indicated that profitability possesses the highest explanatory power in reducing bankruptcy. However, the statistical tests Wu-Hausman and Durbin-Score identified profitability as an endogenous variable in Altman’s model, which this study addressed with an instrumental variable. Thus, this study draws a conclusion that consideration of endogeneity in bankruptcy forecasting is essential, or else the results could be misleading. The results of the study lend credence to the researchers, policy-makers, and practitioners for accurate bankruptcy forecasting.
ISSN:1573-9414
1574-0277
DOI:10.1007/s10644-017-9220-7