Bank Stock Performance During the COVID-19 Crisis: Does Efficiency Explain Why Islamic Banks Fared Relatively Better?

53 Pages Posted: 30 Sep 2020 Last revised: 10 May 2021

See all articles by Ali Mirzaei

Ali Mirzaei

American University of Sharjah

Mohsen Saad

American University of Sharjah

Ali Emrouznejad

Aston Business School

Date Written: May 9, 2021

Abstract

In this paper, we evaluate stock performance of Islamic banks relative to their conventional counterparts during the initial phase of the COVID-19 crisis (from December 31, 2019 to March 31, 2020). Using a total of 426 banks from 48 countries, we find that stock returns of Islamic banks were about 10% – 13 % higher than those of conventional banks, after controlling for a host of bank- and country-level variables. We provide an explanation for the superior stock performance of Islamic banks by assigning a special role for the levels of efficiency. We show that pre-crisis levels of efficiency that are adjusted for bank risk can explain crisis stock returns for Islamic banks, but not for conventional banks. The evidence is robust to alternative measures of stock returns, efficiency models, and other empirical strategies. We finally present some insight on the importance of key bank characteristics in determining the stock returns of conventional banks during the crisis period.

Keywords: COVID-19, Bank performance, Islamic banks, Efficiency, Stock returns

JEL Classification: G21, C14, D22, P43

Suggested Citation

Mirzaei, Ali and Saad, Mohsen and Emrouznejad, Ali, Bank Stock Performance During the COVID-19 Crisis: Does Efficiency Explain Why Islamic Banks Fared Relatively Better? (May 9, 2021). Available at SSRN: https://ssrn.com/abstract=3702116 or http://dx.doi.org/10.2139/ssrn.3702116

Ali Mirzaei

American University of Sharjah ( email )

P.O. Box 26666
Sharjah
United Arab Emirates

Mohsen Saad (Contact Author)

American University of Sharjah ( email )

P.O. Box 26666
Sharjah
United Arab Emirates

Ali Emrouznejad

Aston Business School ( email )

Aston University
Aston Triangle
Birmingham, B47ET
United Kingdom

HOME PAGE: http://www.researchgate.net/profile/Ali_Emrouznejad

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
527
Abstract Views
2,071
rank
67,018
PlumX Metrics