The Determinants of Islamic Banks’ Stock Prices: Evidence from the GCC Countries

Muhammad Muhajir Aminy,Ahmad Sauqi

doi:10.29040/jiei.v6i3.1284

Abstract

Islamic banks’ stock is a new interesting material to be discussed among Islamic economics scholars. The majority of Islamic banks’ stocks presents in the middle-east countries, especially those which are joining as the Gulf Cooperation Council (GCC) countries. Samples in this study were 10 Islamic banks in the Gulf Cooperation Council (GCC) countries with secondary data from their financial report. A panel data regression analysis was employed to seek the influence of all observed variables (ROA, ROE, and ICSR (zakat)) as the determinant factors toward Islamic banks’ stock prices. The study found that all the independent variables simultaneously have an impact on Islamic banks’ stock prices in that area. The study also found that the variable of ROA has a negative significant impact, the variable of ROE has a positive significant impact, and ICSR (zakat) has an insignificant impact on Islamic banks’ stock prices in the GCC countries. This study suggested all Islamic banks globally to consider investors’ sentiment on Islamic banks’ financial condition before entering the Islamic capital market

Highlights

Islamic banking has been widely spread over the world with its Islamic financial products
The purpose of this study is to analyse the impact of profitability ratios, namely Return on Asset (ROA) and Return on Equity (ROE), and Islamic Corporate Social Responsibility (ICSR) disclosure on the volatility of stock prices in the Islamic capital market
The value of 0.9442 (94.42%) in Adjusted R2 section provided in Fixed Effect Model (FEM) result is interpreted as the number of contribution of all the observed independent variables (ROA, ROE, and ICSR in the form of a total of zakat spending) on the dependent variable (Islamic banks’ stock prices), while the other value of 0.0558 (5.58%) is explained by other unobserved variables and not provided in this study

Summary

INTRODUCTION

Islamic banking has been widely spread over the world with its Islamic financial products. Profitability level reported on the company’s financial statement showed the performance of the company It contributed and can drive stock prices volatility inside the capital market. Legitimation theory stated that disclosing Corporate Social Responsibility (CSR) to the public can effectively obtain communities’ legitimation (Hadi, 2011) This effort was made to maximise a company’s long-term financial performance. A study showed that CSR disclosure reported on financial statement has a significant positive influence on the financial performance of several companies in the Gulf Cooperation Council (GCC) countries (Dixon et al, 2016). The purpose of this study is to analyse the impact of profitability ratios, namely ROA and ROE, and ICSR disclosure on the volatility of stock prices in the Islamic capital market. The author proposes ICSR as a novelty, the company’s zakat disclosure, to be an independent variable with Islamic banks’ stock prices as the dependent variable

THEORETICAL BACKGROUND AND HYPOTHESES DEVELOPMENT

RESEARCH METHOD

AND DISCUSSION

The Impact of Profitability Ratios and ICSR

Findings

CONCLUSION