Abstract
The basic purpose of this study is to investigate the determinants of ownership structure and their impact on performance of Islamic banking in Pakistan. Multiple techniques such as descriptive, regression and correlation analysis are used to check the ownership structure and financial performance of Islamic banking in Pakistan. We used secondary Data collected from published annual reports of Islamic banks and apply E-views software to check determinants of ownership structure and their impact on profitability of Islamic banking for this purpose C1, C3 and C5 variables use for ownership concentration, family, individual, institutional and government use for ownership mix as an independent variable and used bank characteristics and micro economic factor as a control variables and their impact on financial performance check through Return on assets (ROA) return on equity (ROE). The finding of this study shows that (C1) largest shareholder, government (GOV) and foreign shareholder negatively related to return on assets (ROA) whereas (C3) the percentage of first three largest shareholders and (C5) the percentage of first five shareholders insignificantly and negatively related to the return on equity while in ownership mix (INST) institutional shareholders and (FAM) family shareholders negatively influence the return on equity (ROE) on the other hand (GOV) state and (FORG) foreign shareholder positively influence the return on equity. In short results of this research conclude that ownership structure effect the financial performance of Islamic banks in Pakistan. This research helpful for financial advisor and investors for investment purpose. This study add value to the literature by exploring ownership structure and their impact on performance of Islamic banking and also provide information to investor about investment purpose and also increase the efficiency and effectiveness of Islamic banks. Keywords: Ownership structure, Financial performance, Islamic banking, Pakistan DOI : 10.7176/RJFA/10-5-04 Publication date :March 31 st 2019
Highlights
The banks play an important role in developing economies as financial institutions and considered extraordinary essential for economies functions
In this study researchers explained ownership structure by two types i.e. ownership concentration (C1:The percentage of shares held by the largest shareholders, C3:The percentage of the first three largest shareholders, C5:The percentage of the first five largest shareholders) and ownership mix is study to discover the relationship between ownership structure and financial performance of Islamic banking sector of Pakistan
Results of this study suggested that moderate ownership concentration effectively improve the return on assets (ROA) and return on equity (ROE).In (2007) Rami and Gray conducted a study on ownership structure and concluded that defaulted firms have high ownership concentration as compared to non-defaulted firms whereas C5 (Largest five shareholder) expressively and inversely effected the performance of default
Summary
The banks play an important role in developing economies as financial institutions and considered extraordinary essential for economies functions. The economic growth impacts on financial institution efficiency. The profitability of banking sector contributes in economic growth and makes economies to tolerate depressing and external financial crisis and contributes in stability of financial system (Athanasoglou et al 2005). It is important to understanding about performance and ownership structure of banking sector. Conventional banking works as financial institution but on the other hand Islamic banking is acknowledged as trade oriented business. The main purpose of emerging Islamic banking is to eliminate the interest (Riba) from all business deals. According to Islamic laws (Shariah) all financial organizations are free from the interest (Riba). Sharing risk and reward are two fundamental things in Islamic banking structure
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