Capital structure, regulation and risk: evidence from Islamic banks and conventional banks

This thesis attempts to broaden the existing empirical research of Islamic banks (IBs) and conventional banks (CBs) by focusing on three distinct aspects: bank capital, risk and regulation. Firstly, IBs are in a disadvantaged position compared to CBs when it comes to capital structure management. In order to promote the capital management capability, IBs need the support of a robust Islamic financial system to broaden their financing instruments and funding sources to reduce adjustment costs. Then, it appears that appropriate policy reforms such as more information disclosure and prompt correction action power could improve sensitivity of required capital and regulatory risk to portfolio risk in Islamic banks. Finally, the supervisory practices stressed by banking supervision of Basel Committee are more effective in reducing risk-taking of IBs compared to CBs. Therefore, it is necessary for regulators to use international regulations for monitoring Islamic banks. This research also finds that the regulatory policies related to risk in times of crisis need to be improved.