Prueba diagnostica – prueba final.

In order to test the robustness of the empirical results of this study, an additional two tests were performed. First, Two Stage Least - Squares (2SLS) regression analysis was applied as an alternative test to control for endogeneity among the examined variables. In addition, to check the endogeneity, the Durbin-Wu- Hausman test is applied. As it can be seen in Table 7.10, 2SLS regression presents almost similar results, as in the initial model with fixed effects test for both Islamic and conventional banks. The Durbin-Wu Hausman F-test scores insignificant value of p-value = 0.8, which indicates that the null hypothesis cannot be rejected and therefore is proven. Hence, accepting the null hypothesis of the Durbin-Wu- Huasman test confirms that there is no threat of endogeneity among the examined variables (Gujarati, 2004).

The results in Table 7.11 show that, consistent with hypothesis H7 and the results of fixed effects model, the capital adequacy ratio is negatively associated with bank efficiency and is statistically significant at t= -0.23, p < 0.10 per cent with a coefficient value of -0.86. Such results indicate that an increase of 1 per cent in the capital adequacy ratio leads to a decrease of bank efficiency by 0.86 per cent. Furthermore, with regards to the control variables, consistent with the results of fixed effect presented in Table 7.9, the results in Table 7.11 show that asset quality do not have any significant association with bank efficiency. The results show that the ratio of cost to income is negatively associated with bank efficiency and is statistically significant at t= -0.02, p < 0.10 per cent with a coefficient value of -

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0.004. Such results indicate that an increase of 1 per cent in capital adequacy ratio leads to a decrease of bank efficiency by 0.004 per cent.

Table 7.11: Panel Data Regressions with 2SLS and Endogeneity Test

Independent Variables Coefficient t- value

Capital Adequacy Ratio -0.860 -0.231*

Asset Quality 0. 005 0.788 Benefit -0.004 -2.023** Liquidity -0.007 -4.424* Size -0.001 9.901** Constant -0.000 3.793*** Adjusted R2 0.441 Hausman 0.050 Prob (F-statistics) 0.000 Durbin – Wu Hausman 0.840 Bank No 50 Obs No 472

*** Significant at 0.01, ** Significant at 0.05, * Significant at 0.10

In addition, the results reveal that the ratio of liquidity is negatively associated with bank efficiency and is statistically significant at t= -2.02, p < 0.05 per cent with a coefficient value of -0.007. Such results indicate that an increase of 1 per cent in the capital adequacy ratio leads to a decrease of bank efficiency by 0.007 per cent. Moreover, the results reveal that bank size is negatively associated with bank efficiency and is statistically significant at t= -9.9, p < 0.05 per cent with a coefficient value of -0.001. Such results indicate that an increase of 1 per cent in capital adequacy ratio leads to a decrease of bank efficiency by 0.001 per cent, as presented in Table 7.11.

145 7.6. Conclusion

This chapter assesses the impact of capital adequacy regulation on the efficiency of 50 banks, 25 Islamic banks and 25 conventional banks, in the GCC countries over the period between 2006 and 2015. Based on the results delivered through the DEA method, the empirical results reveal that the Islamic banks are less efficient than conventional banks in the GCC region. Such results could be due to the unique nature of Islamic financial principles that impose more complexity to the Islamic financial products and operations that in turn lead to lower levels of efficiency compared to the conventional banks. The empirical results are consistent with Hypothesis H7, and reveal that the capital adequacy negatively affects the efficiency of the examined GCC banks. However, the results show that such an effect is lower in the case of the Islamic banks compared to the conventional banks. The obtained results could be due to financial operations that are based on Islamic financial principles.

With regards to the control variables, the empirical results suggest that asset quality is positively associated with bank efficiency and, while in the case of Islamic banks it is statistically significant, it is not significant in the case of conventional banks. The results also reveal that the ratio of cost to income is negatively associated with bank efficiency and is statistically significant, in the case of Islamic and conventional banks. Similar results related to the association between liquidity ratio and bank efficiency in the case of Islamic and conventional banks are achieved. In addition, the empirical results suggest that bank size is negatively associated with bank efficiency and is statistically significant, in the case of Islamic banks and conventional banks in GCC region over the period between 2006 and 2015.

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CHAPTER EIGHT

CONCLUSION

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CHAPTER EIGHT

CONCLUSION

8.1 Introduction

This study aimed to examine capital adequacy and to measure the factors that determine the capital adequacy ratio of the GCC Islamic and conventional banks. Furthermore, it aimed to assess the impact of capital adequacy requirements on the efficiency of Islamic banks in a comparative manner with conventional banks in the case of the GCC countries over the period between 2006 and 2015. The investigations were carried out in this study through DEA and regression analysis. Following the existing literature related to banking, this study developed two regressions models; the first one was applied to examine the determinants of the capital adequacy ratio. The Data Envelopment Analysis (DEA) was used to investigate the level of efficiency, and then, the second regression model was used to examine the relationship between the capital adequacy ratio and the efficiency of the banks.

As for the structure, this Chapter starts with providing the theoretical considerations followed by a summary of the research findings. In addition, the main policy impacts and practical recommendations to improve the current practice of the GCC countries are delivered in this chapter followed by outlining the limitations and recommendations for future research.