Does Islamic Banking Increase the Liquidity of Stocks? An Application to the Kingdom of Bahrain
Posted: 14 Mar 2016
Date Written: March 11, 2016
This paper explores liquidity effects following the merger and acquisition between Al Salam Bank Bahrain and a conventional bank post the financial crises. We find evidence of a sustained increase in the liquidity of the stocks as a result of the change from Conventional to Islamic banking. The empirical findings are consistent with the information cost/liquidity hypothesis, which states that investors demand a lower premium for holding stocks with relatively more available information. Our results suggest that Islamic banking stimulates trading and growth of the financial sector following financial turmoil.
Keywords: Islamic banking; Liquidity; Financial Crises; Mergers and Acquisitions
JEL Classification: G10; G14
Suggested Citation: Suggested Citation