Profit-loss sharing and economic value added in Islamic banking model. In: Profit-Loss Sharing and Economic Value Added in Islamic Banking Model. (Unpublished) (2011)
Abstract
The adoption of Profit-Loss Sharing arrangement in Islamic banking models can create value to their shareholders. Previous studies discuss Profit-Loss Sharing arrangement in the context of financial intermediation theory, but fail: to link the adoption of Profit-Loss Sharing arrangement with value creation and to produce empirical evidence. The aim of this study is to demonstrate the adoption of ProfitLoss Sharing arrangement in Islamic banking model and produce empirical evidence to determine the extent of the adoption of Profit-Loss Sharing in Islamic banks creates value. This study utilizes the Malaysian Islamic banks panel data from 2005-2009 and employs Economics Value Added (EVA) as a technique of value creation measurement. The empirical findings reveal that there is no indication that the adoption of Profit-Loss Sharing arrangement on the deposits structures significantly creates positive value to Islamic banks. This result is consistent for both measurement of value creation against shorter and longer terms opportunity costs of capital employed. This suggests that Islamic banks utilize a lower cost of capital, as Nonmudharaba deposits accounts constitute a large amount of current and saving accounts. On the other hand, for asset structure, this study finds that funds allocated in Securities Investment (FIM) using Profit-Loss Sharing arrangement is significant and create positive value. However, funds allocated in Financing (FPLS) based on ProfitLoss Sharing arrangement results a reduction in the value of Islamic banks. It is evident that empirically Islamic banks need to extensively utilize Profit-Loss Sharing arrangement in their operation, hence create value to their shareholders.
| Item Type: | Conference or Workshop Item (Paper) |
|---|---|
| Keywords: | Islamic banking, Profit-Loss Sharing, EVA, Value Creation |
| Taxonomy: | By Niche > Islamic Banking > Banks and Banking > Finance |
| Local Content Hub: | Niche > Islamic Banking |
| Depositing User: | Ilya Nur Fateen Othman |
| Date Deposited: | 07 Nov 2025 03:27 |
| Last Modified: | 07 Nov 2025 03:27 |
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