Revisiting Audit Quality and Bank Stability
Insights from Islamic and Conventional Banking in MENA
DOI:
https://doi.org/10.48112/tibss.v4i1.1216Abstract
Abstract Views: 42
The purpose of this study was to examine the impact of political turmoil, bank characteristics, and audit quality on the financial stability of banks in terms of Z-Score. This study employed the fixed and random effects models on the whole sample, Islamic banks, and conventional banks, respectively. The total panel observation of this paper was 2,873 from 221 institutions. The findings showed that although audit quality positively affects conventional banks, it negatively affects the stability of Islamic institutions to a significant extent. The result also highlighted the positive relationship between financial stability and other explanatory variables such as bank size, profitability, liquidity, and the Capital Adequacy Ratio (CAR) in all models. However, leverage had a negative impact on financial stability except in the Islamic banks context, where a positive correlation existed between leverage and financial stability. Political instability was a major cause of financial instability in any model, although it affected the Islamic institutions the most. In the Islamic bank’s context, the random effects model was most appropriate, while the fixed effects model was suitable for the entire sample comprising regular banks. These results provide regulators and policymakers with special recommendations on how to make banks more stable in different banking conditions.
Keywords:
Audit Quality, Bank Stability, Conventional Banking, Islamic Banking, MENA, Political TurmoilReferences
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