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Article
Publication date: 16 July 2021

Oussama Gafrej and Mouna Boujelbéne

The purpose of this paper is to examine the relation “diversification-risk-performance” for Islamic and conventional banks in different financial stress levels. Also, it aims to…

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Abstract

Purpose

The purpose of this paper is to examine the relation “diversification-risk-performance” for Islamic and conventional banks in different financial stress levels. Also, it aims to investigate the impact of the structure of board directors, macroeconomic variables and banking specific factors on banking diversification.

Design/methodology/approach

The authors use generalized least squares regressions to examine the impact of banking specific, macroeconomic and governance variables on investment diversification of 66 Islamic and conventional banks during the period from 2006 to 2018. In addition, this study uses panel threshold regressions to study the impact of banks’ profitability and risks on investment diversification in different financial stress levels.

Findings

The findings show liquidity risk, performance, credit risk and capitalization ratio are significantly related to investment diversification of Islamic banks. On the other hand, liquidity and credit risks, capital to total assets ratio and size have a significant influence on investment diversification of conventional banks. In addition, the diversification strategy of Islamic banks is less sensitive to macroeconomic indicators. As regards to governance variables, the results suggest that the board size, the executive directors and the foreign directors have significant impact on the investment diversification in Islamic banks. On the other hand, chief executive officer duality and foreign directors affect significantly the investment diversification of conventional banks. This study also found that financial stress enables us to develop a better understanding of the relation “performance-risks and diversification.”

Practical implications

It is expected that the findings of this paper can be used by Islamic and conventional banks in Gulf Cooperation Council (GCC) region that seek to manage the diversification strategy by reducing risk-taking and maximizing profitability. This study suggests that bank managers should consider the level of financial stress during the development of diversification strategy. It provides a better understanding for bank managers about the effect of bank specific and macroeconomics factors as well as governance variables on diversification.

Originality/value

This study focuses on providing an extension of the existing literature by studying the impact of financial stress indices on the relation between banks’ risk-performance and investment diversification for Islamic and conventional banks in the GCC region.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 15 no. 1
Type: Research Article
ISSN: 1753-8394

Keywords

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Article
Publication date: 4 September 2023

Oussama Gafrej

This paper aims to evaluate the performance of the multiple linear regression (MLR) using a fixed-effects model (FE) and artificial neural network (ANN) models to predict the…

125

Abstract

Purpose

This paper aims to evaluate the performance of the multiple linear regression (MLR) using a fixed-effects model (FE) and artificial neural network (ANN) models to predict the level of customer deposits on a sample of Tunisian commercial banks.

Design/methodology/approach

Training and testing datasets are developed to evaluate the level of customer deposits of 15 Tunisian commercial banks over the 2002–2021 period. This study uses two predictive modeling techniques: the MLR using a FE model and ANN. In addition, it uses the mean absolute error (MAE), R-squared and mean square error (MSE) as performance metrics.

Findings

The results prove that both methods have a high ability in predicting customer deposits of 15 Tunisian banks. However, the ANN method has a slightly higher performance compared to the MLR method by considering the MAE, R-squared and MSE.

Practical implications

The findings of this paper will be very significant for banks to use additional management support to forecast the level of their customers' deposits. It will be also beneficial for investors to have knowledge about the capacity of banks to attract deposits.

Originality/value

This paper contributes to the existing literature on the application of machine learning in the banking industry. To the author's knowledge, this is the first study that predicts the level of customer deposits using banking specific and macroeconomic variables.

Details

Managerial Finance, vol. 50 no. 3
Type: Research Article
ISSN: 0307-4358

Keywords

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Article
Publication date: 20 January 2022

Oussama Gafrej and Mouna Boujelbéne

The purpose of this paper is to propose a financial instrument by combining two main contracts in Islamic finance with the aim to minimize risks involved in Islamic venture…

251

Abstract

Purpose

The purpose of this paper is to propose a financial instrument by combining two main contracts in Islamic finance with the aim to minimize risks involved in Islamic venture capital (IVC) activities.

Design/methodology/approach

A mathematical model and explanatory figures are provided to see how IVC firms can benefit from the combination of “Ijara” contract and “Diminishing Musharaka” contract to provide financing for start-up and high-tech companies.

Findings

The proposed instrument could be considered as an alternative solution for IVC firms. It represents a low level of risk with a stable income in the beginning of the project. In addition, it allows benefiting from the possible development of start-up and high-tech companies with a smooth exit from the capital of the financed company without the intervention of another investor. It is also considered as a motivational instrument for the entrepreneurs, because it allows benefiting from a grace period on the one hand and from a lower cost of financing compared to other type of funding on the other hand.

Practical implications

Some studies have concentrated on identifying and understanding the concept, the operation and the challenges of IVC industry. The study is considered among few studies that provide a practical model for IVC firms, which takes account of the different stages of venture capital process. The instrument can promote the development of IVC firms and give alternative financing opportunities to Muslim entrepreneurs.

Originality/value

The current model provides a truly revolutionary solution for young Muslim entrepreneurs who do not accept to be financed by the proposed instruments of venture capital (VC) firms such as convertible bonds and warrants. On the other side, it provides an alternative solution for IVC firms to the already offered products such as “Musharaka”, “Mudharaba” and “Wakalah” contracts. An expert in “Fiqh Al-Muamalat” (Islamic law of transaction) assessed the Sharia compliance of the model.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 15 no. 6
Type: Research Article
ISSN: 1753-8394

Keywords

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