Priviet Social Sciences Journal

Comparison of capital structure, risk, and profitability between Islamic and conventional banks in Indonesia

by Arowadi Lubis ORCID , Ida Ayu Fatmayuni ORCID , Hikmah Endraswati
Vol. 5 No. 10 (2025): October 2025

Abstract

This study aims to compare Islamic and Conventional Banks in Indonesia in terms of Capital Structure, Profitability, and Risk handling. Data for the analysis were taken from the quarterly financial reports of nine Islamic and Conventional Banks for the 2013Q1 – 2020Q3 period. Binary logistic regression was employed as an analysis tool using SPSS 19 software. The results show that Islamic and Conventional Banks are significantly different in terms of capital structure, profitability, and risk handling. Conventional banks have better capital structures and profitability. Islamic Banks, on the other hand, have better risk management.

References

  1. Abedifar, P., Molyneux, P., & Tarazi, A. (2013). Risk in Islamic banking. Review of Finance, 17(6), 2035–2096. https://doi.org/10.1093/rof/rfs041
  2. Abdelsalam, O., Dimitropoulos, P., Elnahass, M., & Leventis, S. (2016). Earnings management behaviors under different monitoring mechanisms: The case of Islamic and conventional banks. Journal of Economic Behavior and Organization, 132, 155–173. https://doi.org/10.1016/j.jebo.2016.04.022
  3. Agoraki, M. E. K., Delis, M. D., & Pasiouras, F. (2011). Regulations, competition and bank risk-taking in transition countries. Journal of Financial Stability, 7(1), 38–48. https://doi.org/10.1016/j.jfs.2009.08.002
  4. Al-Hunnayan, S. H. (2020). The capital structure decisions of Islamic banks in the GCC. Journal of Islamic Accounting and Business Research, 11(3), 745–764. https://doi.org/10.1108/JIABR-02-2017-0026
  5. Apriliani, L., & Ibnu, A. R. (2018). Analisis struktur modal Bank Syariah Mandiri terhadap tingkat profitability periode 2013–2018. Jurnal Nisbah, 5(2), 116–126. https://ojs.unida.ac.id/JN/article/view/1836
  6. Asutay, M., Ayturk, Y., & Aksak, E. (2020). The effects of regulation and supervision on the risk-taking behaviour of Islamic banks. Journal of Islamic Accounting and Business Research. https://doi.org/10.1108/JIABR-12-2019-0222
  7. Athanasoglou, P., Brissimis, S., & Delis, M. (2008). Bank-specific, industry-specific and macroeconomic determinants of banks’ profitability. International Financial Markets, Institutions and Money, 18(2), 121–136. https://doi.org/10.1016/j.intfin.2006.07.001
  8. Beck, T., Demirgüç-Kunt, A., & Merrouche, O. (2013). Islamic vs. conventional banking: Business model, efficiency and stability. Journal of Banking and Finance, 37(2), 433–447. https://doi.org/10.1016/j.jbankfin.2012.09.016
  9. Bitar, M., & Madiès, P. (2017). What makes Islamic banks different? A multivariate approach. Economic Systems, 41(2), 215–235. https://doi.org/10.1016/j.ecosys.2016.06.003
  10. Black, F., & Scholes, M. (1973). The pricing of options and corporate liabilities. Journal of Political Economy, 81(3), 637–654. https://doi.org/10.1086/260062
  11. Brigham, E. F., & Houston, J. F. (2019). Fundamentals of financial management. Cengage Learning.
  12. Bukair, A. A. A. (2019). Factors influencing Islamic banks’ capital structure in developing economies. Journal of Islamic Accounting and Business Research, 10(1), 2–20. https://doi.org/10.1108/JIABR-02-2014-0008
  13. Chatti, M. A. (2012). L’impact de l’éthique bancaire sur la diversification d’une banque islamique. Etudes En Economie Islamique, 6(1/2), 1–27.
  14. Dietrich, A., & Wanzenried, G. (2011). Determinants of bank profitability before and during the crisis: Evidence from Switzerland. Journal of International Financial Markets, Institutions and Money, 21(3), 307–327. https://doi.org/10.1016/j.intfin.2010.11.002
  15. Hutauruk, F. N. (2020). Ukuran perusahaan sebagai pemoderasi dalam hubungan profitabilitas dan likuiditas terhadap struktur modal bank umum syariah. EKONOMIKA SYARIAH: Journal of Economic Studies, 4(2), 136. https://doi.org/10.30983/es.v4i2.3633
  16. Jensen, M., & Meckling, W. (1976). Theory of the firm: Managerial behavior, agency costs, and ownership structure. Journal of Financial Economics, 3, 305–360. https://doi.org/10.1016/0304-405X(76)90026-X
  17. Klomp, J., & Haan, J. D. (2012). Banking risk and regulation: Does one size fit all? Journal of Banking and Finance, 36(12), 3197–3212. https://doi.org/10.1016/j.jbankfin.2011.10.006
  18. Konishi, M., & Yasuda, Y. (2004). Factors affecting bank risk taking: Evidence from Japan. Journal of Banking and Finance, 28(1), 215–232. https://doi.org/10.1016/S0378-4266(02)00405-3
  19. Lintner, J. (1965). The valuation of risk assets and the selection of risky investments in stock portfolio and capital budgets. The Review of Economics and Statistics, 47(1), 13–37. https://doi.org/10.2307/1924119
  20. Mardhatillah, B. A., Waluyo, B., & Fatah, D. A. (2020). Pengaruh corporate social responsibility (CSR) dan struktur modal terhadap profitabilitas bank umum syariah di Indonesia. SERAMBI: Jurnal Ekonomi Manajemen Dan Bisnis Islam, 2(3), 177–186. https://doi.org/10.36407/serambi.v2i3.238
  21. Markowitz, H. (1952). Portfolio selection. The Journal of Finance, 7(1), 77–91. https://doi.org/10.1111/j.1540-6261.1952.tb01525.x
  22. Metwally, M. M. (1997). Differences between the financial characteristics of interest-free banks and conventional banks. European Business Review, 97(2), 92–98.
  23. Mokni, R. B. S., & Rachdi, H. (2014). Assessing the bank profitability in the MENA region: A comparative analysis between conventional and Islamic bank. International Journal of Islamic and Middle Eastern Finance and Management, 7(3), 305–332. https://doi.org/10.1108/IMEFM-03-2013-0031
  24. Mollah, S., & Zaman, M. (2015). Shari’ah supervision, corporate governance and performance: Conventional vs. Islamic banks. Journal of Banking and Finance, 58, 418–435. https://doi.org/10.1016/j.jbankfin.2015.04.030
  25. Mollah, S., Hassan, M. K., Al Farooque, O., & Mobarek, A. (2016). The governance, risk-taking, and performance of Islamic banks. Journal of Financial Services Research, 1–25. https://doi.org/10.1007/s10693-016-0245-2
  26. Myers, S. C. (1977). Determinants of corporate borrowing. Journal of Financial Economics, 5(2), 147–175. https://doi.org/10.1016/0304-405X(77)90015-0
  27. Nasrah, H., & Resni, N. (2020). Faktor-faktor yang mempengaruhi struktur modal bank syariah di Indonesia tahun 2014–2018. Jurnal Tabarru’: Islamic Banking and Finance, 3(2), 281–294. https://doi.org/10.25299/jtb.2020.vol3(2).5881
  28. Olson, D., & Zoubi, T. (2008). Using accounting ratios to distinguish between Islamic and conventional banks in GCC region. The International Journal of Accounting, 43(1), 45–65. https://doi.org/10.1016/j.intacc.2008.01.003
  29. Pohar, M., Blas, M., & Turk, S. (2004). Comparison of logistic regression and linear discriminant analysis: A simulation study. Metodološki Zvezki, 1(1), 143–161.
  30. Sharpe, W. (1964). Capital asset prices: A theory of market equilibrium under conditions of risk. Journal of Finance, 19(3), 425–442. https://doi.org/10.1111/j.1540-6261.1964.tb02865.x
  31. Sheikh, N. A., & Qureshi, M. A. (2017). Determinants of capital structure of Islamic and conventional commercial banks: Evidence from Pakistan. International Journal of Islamic and Middle Eastern Finance and Management, 10(1), 24–41. https://doi.org/10.1108/IMEFM-10-2015-0119
  32. Titman, S., & Wessels, R. (1988). The determinants of capital structure choice. The Journal of Finance, 43(1), 1–19. https://doi.org/10.1111/j.1540-6261.1988.tb02585.x
  33. Toumi, K., Louhichi, W., & Viviani, J.-L. (2012). Alternative financial decision principles: Theoretical foundations of Islamic banks’ capital structure. In Recent Developments in Alternative Finance: Empirical Assessments and Economic Implications, 22, 157–172. https://doi.org/10.1108/S1571-0386(2012)0000022013
  34. Wahyudi, R., Fithria, A., & Sartini, S. (2020). The relationship between capital structure and performance in Islamic rural bank. International Journal of Islamic Studies and Humanities, 3(2), 82–89. https://doi.org/10.26555/ijish.v3i2.1989
  35. Yanikkaya, H., Gümüş, N., & Pabuçcu, Y. U. (2018). How profitability differs between conventional and Islamic banks: A dynamic panel data approach. Pacific-Basin Finance Journal, 48, 99–111.