The impact of corruption on the performance of Islamic banking in the United Arab Emirates: empirical evidence by using static panel analysis

Abstract

Purpose- The major objective of this paper was to scrutinize the impact of corruption control on Islamic banking performance in the United Arab Emirates. So the performance of Islamic banks was determined by the profitability as a specific objective of this study. Methodology- Panel data was grounded on quantitative analysis applied. Also, the study collects data from secondary sources from 2000 up to 2019. The sample of this paper comprised a total of 18 banks that were selected in the UAE. Data were collected from the World Bank data set and annual financial reports for each selected bank. The study analyzed the data based on descriptive statistic, correlation matrix, and static models which includes pooled OLS model, random effect, and fixed effect to achieve the study objective. So, results were presented in the form of tables for descriptive analyses of the key variables applied, correlation as well as static models. The static model that was applied for this study provides the uniqueness of this paper because most of the previous corresponding studies did not employ a static model but used a dynamic model especially the Generalized Method of moment (GMM). So, the originality of this study firstly, it is the earliest study that used a static model, and secondly, this study may be the first to look at the impact of corruption control on Islamic bank's profitability. This is because most of the study is based on the impact of corruption and not corruption control like this study. Findings – The findings have shown that corruption control and bank profitability have a statistical correlation relationship and its coefficient revealed a positive association which indicates that in the UAE control of corruption would increase the profitability of Islamic banks. The discussions of the findings show that some previous studies are consistence with the study while others are inconsistent. The results of this implied that the Islamic bank flourish and benefit from the corruption-controlling strategies that existed in UAE. Conclusion – The study recommends that in UAE and other countries the zero-tolerance policy for corruption mitigation and eradication is a perfect way, efforts should take and should be achievable right now. So alternative way to expression at this is in terms of Islamic finance should not tolerate non-Shariah compliant elements and any element of the practice of corruption. So, the strong practice of corruption in the Muslim states and non-Muslim states hinders the progress of Islamic financial institutions (IFIs). From these results, Islamic finance should insist on the application of its principles for every Industry that offers Islamic finance products and services.