Does corruption affect Islamic banking? Empirical evidence from the OIC countries

Abstract

PurposeThis paper aims to examine whether the level of corruption affects profitability and soundness of Islamic banking.Design/methodology/approachThis paper uses a dynamic panel of 61 Islamic banks from 12 Organization of Islamic Cooperation (OIC) countries covering the period between 2016 and 2018.FindingsThis paper finds that the empirical evidence examined shows that corruption does affect the profitability and soundness of Islamic banks.Originality/valueThe value of this paper is to emphasize further understanding of corruption behaviour on Islamic banking in Islamic countries. This paper contributes to filling the gaps in the current literature on corruption and Islamic banking. Existing literature has only focussed on either profitability or soundness of Islamic banking, whereas this paper analyses the impact of corruption levels for both performance measurements simultaneously.