Online from: 2008
Subject Area: Accounting and Finance
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|Title:||Impact of financial shocks on Islamic banks: Malaysian evidence during 1997 and 2007 financial crises|
|Author(s):||Salina H. Kassim, (Department of Economics, Kulliyyah of Economics and Management Sciences, International Islamic University Malaysia, Kuala Lumpur, Malaysia), M. Shabri Abd. Majid, (Department of Economics, Kulliyyah of Economics and Management Sciences, International Islamic University Malaysia, Kuala Lumpur, Malaysia)|
|Citation:||Salina H. Kassim, M. Shabri Abd. Majid, (2010) "Impact of financial shocks on Islamic banks: Malaysian evidence during 1997 and 2007 financial crises", International Journal of Islamic and Middle Eastern Finance and Management, Vol. 3 Iss: 4, pp.291 - 305|
|Keywords:||Autoregressive processes, Banks, Economic trends, Islam, Malaysia|
|Article type:||Research paper|
|DOI:||10.1108/17538391011093243 (Permanent URL)|
|Publisher:||Emerald Group Publishing Limited|
Purpose – The purpose of this paper is to provide empirical evidences on the impact of financial shocks on the Islamic banks
Design/methodology/approach – Focusing on the Malaysian data covering three sub-periods, namely, the 1997 Asian financial crisis period (July 1997-September 1999), the non-crisis period (October 1999-June 2007) and the 2007 financial crisis period (July 2007-September 2009), the study employs the impulse response functions and variance decomposition analysis based on the vector auto-regression (VAR) method.
Findings – The results indicate that both the Islamic and conventional banking systems are vulnerable to financial shocks. This is contrary to the popular belief that the Islamic financial system is sheltered from the financial shocks due to its interest-free nature.
Research limitations/implications – The results of this study have important implications for the risk management practices of both the Islamic and conventional banks.
Originality/value – This paper contributes in providing the empirical evidence on the impact of financial shocks on the Islamic banks. To the authors' knowledge, there have been no studies comparing of the impacts of the two major financial crises on the Islamic banking sector.
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