Optimal Ownership Structure Toward Islamic Bank Performance: A Panel Data Approach

The objective of this study is to explore the impact of ownership structure on the performance of Islamic Banks of Pakistan for the period 2008 to 2015. The performance of the banks measure in term of profitability (return on assets (ROA) and return on equity (ROE)) and the efficiency (Non-performing loan (NPL)). The ownership structure generally accepted the important component of corporate governance (Shleifer & Vishny, 1986) and measured through institutional ownership, ownership concentration, managerial ownership, foreign ownership, government ownership, and family ownership. This study employed fixed/random effect and GMM estimations and found that the ownership structure influence on the return on asset and return on equity is very meager. It reflects that owners are not making policies regarding efficient use of assets to get more return out of it. Whereas, managerial ownership and ownership concentration have a negative impact on ROE. More precisely, the results are inclined toward the agency theory. The efficiency of the banks to recover their loans amount from their clients seems miserable because all ownership structure (institutional ownership, government ownership, foreign ownership, and ownership concentration expect managerial ownership) have a positive significant impact on NPL. It means management of the banks is not able to collect their funds back from the borrowers. This reflects the inefficiencies of the Islamic banks. The management of the bank is not properly utilizing their funds collected from the different sources of ownership. As per the results of research findings presented above, this paper ensuring few policy recommendations to make the banks performance up to the mark.