A Conceptual Framework of The Impact of Arabic Spring On

Article
A Conceptual Framework of The Impact of Arabic Spring

on Efficiency, Intellectual Capital, and Corporate
Governance of Islamic Banks
Ayat Nader Yousef Abdalghani 1, Rafidah Binti Othman 2*, and Siti Zaleha Abdul Rasid 3
1
Azman Hashim International Business School, University Technology Malaysia, Kuala Lumpur,
Malaysia; e-mail@e-mail.com; szaleha.kl@utm.my
* Correspondence: rafidah.othman@utm.my
Abstract: This is a concept paper for a future study based on the literature on risk management, 1
intellectual capital, corporate governance, and bank efficiency measurement in the Arab countries 2
The importance of efficiency research in the banking sector has grown over the years, as all banks 3
strive to be efficient by minimizing inputs, such as expenses, and maximizing outputs, such as profit,
4 the objectives of this study are to compare banking efficiency between conventional and Islamic 5
banks in several Arab countries (Tunisia, Jordan, Egypt, and Lebanon) that have experienced both an
6 economic and political downturn in the Arab Spring .risk management, and intellectual capital as 7
antecedent variables, as well as corporate governance as a moderating variable. Data Envelopment 8

Analysis (DEA) is used to examine bank efficiency. The DEA analysis can help banks become more 9
efficient while also maximizing their knowledge benefits. Future studies could provide advice to 10
banks on how to be more efficient. Also, the empirical result of this study is expected to contribute to
11 the existing literature on banking efficiency in Arab countries. 12
Keywords: Bank Efficiency; Islamic Bank; Conventional Banks; Risk Management; Intellectual 13
Capital; Corporate Governance 14
1. Introduction 15
The banking sector represents the backbone of most developed nations’ financial 16
systems. Studies on the efficiency of financial institutions have become an essential aspect 17
of banking research since the 1990s due to their impact on organizations’ performance 18
Citation: Lastname, F.; Lastname, F.;
Berger (1997). Given the importance of banking efficiency, it is crucial to understand how 19
Lastname, F.. 2022. Title. International
to measure it in the banking industry Berger (2007). The measuring of efficiency would 20
Journal of Financial Studies 1: 0.
https://doi.org/
allow banks to determine the current state of each bank’s efficiency and how it compares to 21
other banks. 22
Received: Historically, Islamic banking started in the 1970s in Iran and Pakistan as a financial 23
Accepted: system; however, the first Islamic bank was the Dubai Islamic Bank (DIB) in the United Arab 24
Published: Emirates, followed by the establishment of the International Islamic Development Bank 25
Publisher’s Note: MDPI stays neutral (IDB) in Jeddah, Saudi Arabia. Islamic banks are different from non-Islamic banks, which 26
with regard to jurisdictional claims in provide sound financial services and play a vital role in the development of the economy of 27
published maps and institutional their societies. The earliest Islamic bank system was in 1963, when Egypt saw the opening 28
affil- iations. of the first Islamic bank; then, the sector began to revolve rapidly (Al-Khasawneh 2012). 29
Copyright: © 2022 by the authors.
Today, over 3000 Islamic banking institutions all over the world diffused over 70 countries.
30 Most took the Middle East and South-east Asia as their prominent locations, taking Bahrain
Submitted to Int. J. Financial Stud. 31
for possible open access publication and Malaysia as their hubs. Furthermore, there is a clear appearance of Islamic banks in 32
under the terms and conditions Europe and the USA (Haddad 2017). 33
of the Creative Commons Attri-

bution (CC BY) license (https:// 2. Systematic Overview of Banking Efficiency 34
creativecommons.org/licenses/by/
Most literature on banking efficiency comes from the United States. In contrast, there 35
4.0/).
is little literature on Europe and Arab-based banks (Chortareas 2012; Du 2018; Hajer 2018; 36
Version December 12, 2022 submitted to Int. J. Financial Stud. https://www.mdpi.com/journal/ijfs

Version December 12, 2022 submitted to Int. J. Financial Stud. 2 of 15
Olson 2011; Vu 2013). In order to measure efficiency, the systematic approach shown in 37
Figure 1 is followed in the literature. 38
Figure 1 shows the systematic approach taken to measure efficiency in which there are 39
four main steps, each detecting the process towards measuring banking efficiency. Firstly, 40
the type of efficiency is determined, which includes: a) technical efficiency (Farrell 1957), 41
which refers to a service provider (i.e., the bank) creating a separate output for the lowest 42
possible price to be cost-efficient. Similarly, a service provider aiming for revenue efficiency, 43
maximizes income from the use of given inputs (e.g., capital, fixed asset, and deposit); 44
and b) allocative efficiency (Farrell 1957; Leibenstein 1966), which refers to the process of 45
maximizing profit from the assigned inputs and outputs (e.g., loan and investment) (i.e., 46
profit efficiency). 47
Secondly, the service provider selects efficiency measurement approaches: a) para- 48
metric approach such as the Stochastic Frontier Approach (SFA) (Aigner 1977), the Thick 49
Frontier Approach (TFA) (Berger 1997), and the Distribution Free Approach (DFA) (Berger 50
1993), which utilizes econometric techniques; and b) non-parametric approach such as 51
Free Disposal Hull analysis (FDH) (Deprins 1984) and the Data Envelopment Analysis 52
(DEA) (Charnes 1979). which utilizes linear programming methods. The key differences 53
between the two approaches are managing the random error and the assumptions about 54
the geometry of the efficient frontier. Each approach has its advantages and disadvantages. 55
Financial institution efficiency studies employ non-parametric or parametric approaches 56
since both approaches employ quite different techniques for efficiency analysis. Apart 57
from the research by Casu (2002); De Campos (2001), there is no evidence of consistency 58
between the two approaches because only a few experiments have been conducted to test 59
the robustness of the data provided by the two frontier techniques. In order to strengthen 60
the findings, parametric and non-parametric methodologies should be applied (Abbas 2015; 61
Abdul-Majid 2010; Hassan 2009). If the bulk of the findings from the two methodologies is 62
similar, one can be confident that the results are not the result of chance or luck. 63
Thirdly, the input and output variables must be identified after deciding on the 64
efficiency and measurement methods. In particular, Figure 1 illustrates the decision a 65
service provider must make before measuring a bank’s efficiency. Any decision taken, 66
however, will be primarily based on how banks manage the money they receive from 67
depositors as well as the money they extend to creditors. In this regard, there are two basic 68
approaches: a) intermediation approach, which is based on the intermediation concept, 69
is proposed by Sealey Jr (1977) and defines banks as financial intermediaries (or fund 70
collectors) who act as intermediaries between surplus agents and deficit makers through 71
loans and other types of resource transfer. The intermediation approach is commonly used 72
to specify the variables that will be used as inputs and outputs (Liu 2013). In this approach, 73
the various types of resources that can be lent and the cost associated with executing the 74
intermediation process are used as inputs, whereas the various types of cash that can be 75
provided are used as outputs (Cook 2010); and b) production approach (Cobb 1928), which 76
defines banks as using physical inputs such as labour and capital to create deposit and loan 77
accounts, the production method defines bank activity as the production of services. 78
Finally, after following all of the procedures given above, a service provider can obtain 79
efficiency results (see Figure 1). Inefficiency is measured by the wedge between one and 80
the observed value. A value of one, or one hundred per cent, indicates maximum efficiency 81
and frontier operations. Operations below the frontier have a value of less than one or 82
100%. 83
This paper attempts to compare the efficiency between Islamic and Conventional banks 84
by using different variables such as risk management, intellectual capital and corporate 85
governance as moderating the relationship between the two variables and banks’ efficiency 86
through DEA. The financial crisis affected many conventional banks worldwide, but Islamic 87
banks were unaffected (Kweh 2018; Selvanathan 2018). The reason is that Islamic banks 88
follow Sharia principles that prohibit interest, adversely affecting conventional banks. 89
Islamic banks spread outside traditional Muslim regions. Nowadays, there are more than 90
300 Islamic financial institutions in more than 70 countries in addition to Islamic Windows
91 in Conventional banks in different countries. For example, there are 5 Islamic banks in the
92 UK and Islamic financial institutions in the USA (Al-Hares 2017). Due to the rapid increase
93 in Islamic banking, their importance for some economic sectors in MENA, CGG and East
94 Asian countries imposed the need to understand efficiency and its drivers. 95
The current study focuses on four Arab countries, namely Tunisia, Jordan, Egypt and 96
Lebanon, with a substantial Muslim population and where Islamic and conventional banks 97
are in operation. This research aims to compare the bank performance as efficiency between 98
Islamic and conventional banking systems. Since Islamic banks do not engage in activities 99
not allowed by Islam, even though it might promise a high return, does the adherence. 100
Figure 1. Systematic approach For measuring banking efficiency.
3. Literature Review 101
The world economy faces severe global financial challenges that have caused the 102
failure of several banks. Such failure was caused by the world financial crisis that started 103
in 2008 and ended in 2010 and the Arab revolutions, known as the Arab Spring, which 104
took place in 2011 (Mondal 2012). The results of the bank efficiency studies have shown 105
contradicting findings, in which some studies have shown a positive impact, and some 106
studies in the Arab region have shown an adverse effect of bank efficiency among Islamic 107
and conventional banks. (Shawtari 2015; Abedifar 2016; Jamaluddin 2017). 108
Efficient and effective use of resources is a significant objective for each bank. Poor use 109
of resources or inefficacy has always been a persisting issue in Islamic and conventional 110
banking; however various ongoing efforts are expediting that relate to banking efficiency. 111
For instance, increasing competition for Risk management, corporate governance, and 112
intellectual capital is used to control banks’ expenses and efficiently administer resources. 113
There are numerous investigations on corporate governance, yet just a few studies 114
focus on banks’ corporate governance (Abedifar 2016), although the critical parts of corpo- 115
rate governance can be connected to banks. The issues of aggregate activity looked at by 116
partners who wish to guarantee the adequate allotment of assets, the circulation of semi- 117
rents, and the issues resulting from various sorts of ownership and control, are significant 118
to financial elements. Thus, a banks’ CEO should concentrate the banks’ monetary help 119
on where it is most effective and is not shorthand for pulling again from the energetic 120
association it appreciates with middle-income countries. 121
Previous studies show inconsistent findings on the relationship between risk manage- 122
ment and efficiency. The studies by Danoshana (2019); Garcia-Meca (2010) show a positive 123
relationship between risk management and efficiency. It prevents management from mis- 124
using the organization’s funds, protects shareholder rights, and increases performance 125
levels, minimizing risk management related to financial and administrative corruption at 126
the organizational level. 127
The enthusiasm for intellectual capital drastically developed when various information-
128 escalated businesses showed up, for example, programming advancement, biotechnology,
129 counselling, computer, and web-based ventures. Dženopoljac (2016) tended to intellectual
130 capital in a spacious manner, as the whole of learning, data, protected innovation, and 131
experience held by everyone in an organization, put to use to make an aggressive edge 132
and, consequently, the abundance of an organization. After that, numerous benefactors 133
endeavoured to refine, refresh and further reveal insight into organisations’ intellectual 134
capital (Dženopoljac 2016). Learning the board and intellectual capital are considered 135
among the most youthful administration controls to have picked up acknowledgement 136
from established researchers. Thus, it is essential to investigate this factor in the banking 137
system in the Arabian world. 138
Efficiency is a critical factor for remaining competitive, and various later factual inves- 139
tigations have demonstrated that efficient banks have considerable cost and competitive 140
advantages over those with average or below-average efficiency. Different methodological 141
approaches have been utilized to determine this efficiency estimation issue. Most stud- 142
ies use parametric (Gheeraert 2014) or non-parametric frontier approaches (Johnes 2014). 143
However, the majority of researchers suggest the use of non-parametric approaches, and 144
hence this study will focus on DEA (Wanke 2019; Emrouznejad 2018). Nevertheless, Titus 145
(2017), used two parametric methodologies, SFA and Multiple Regression Analysis (MRA), 146
to measure efficiency. 147
This research aimed to investigate the factors impacting the Arabian banking system. 148
This insight study examines the Arabian world because it has a unique background and 149
enables different results with every factor. This examination looks to cover the Islamic 150
and conventional banks from four nations, namely Tunisia, Jordan, Egypt and Lebanon, 151
before the Arab Spring (2008-2010) and after Arab Spring (2011-2019) due to the ongoing 152
transformations in the Arab world being various and complex, which cannot be positively 153
credited to one factor. By doing so, this investigation conveys a complete understanding 154
of the financial highlights of the Arab world. It unites an across-the-board connected 155
and scholastic writing on the monetary scenes of the Arab world and looks at present- 156
day advancements affecting bank arrangement and execution. These trends suggest that 157
cost control can be a vital objective of bankers and that utilizing resources efficiently and 158
effectively will be critical to banking achievement. This exploration depends on numerous 159
research questions on the impacts of corporate governance, intellectual capital and Risk 160
management in the banking system using DEA in the Arabian world. This study identifies 161
several characteristics of the most efficient and least efficient banking systems using DEA 162
in the Arabian world. By comparing these two sets of banks’ financial characteristics, 163
ownership, and management, the research will endeavour to reveal factors contributing to 164
efficient financial procedures. This examination aims to fill the gap in banking efficiency, in 165
which risk management, corporate governance, and intellectual capital in banks are critical 166
motivations for demonstrating this investigation in the Arabian world. However, there 167
is still a lack of sufficient studies that focus on bank efficiency among conventional and 168
Islamic banks in Arab countries because of the lack of evidence provided by the banking 169
sector in Arab nations (Han 2012; Rosman 2014). 170
3.1. Islamic Banking and The Effect of Arab Spring 171
The Arab Spring across the MENA countries is a regional populist revolution that 172
has changed the political dynamics. This started in 2010 and remained in one form or 173
another, whether in a continuing violent conflict or a continuous regime change due to 174
an unpredictable citizenry. The public has taken to the streets, mainly non-violently, to 175
call for an end to authoritarian rule and corruption. Nawaz (2013) stated that the financial 176
crisis in the Arab World has led to an increase in the need and awareness for effective risk 177
management strategies and structure in the banking system. 178
Banks are described as the basic building block of a financial system, as they have a 179
vital role in developing the economy. The banking system has been subject to investigation 180
and analysis in various aspects of literature (Banya 2019; Simatele 2018). Bank Efficiency 181
is intermediary in transferring funds from surplus units to deficit units. Moreover, the 182
banking sector is vital in allocating capital and impacting the gross domestic product (Fu 183
2018). Therefore, bank efficiency is essential and needs more attention in the literature to 184
enable fostering of financial systems. The concept of efficiency in banking institutions is 185
similar to that of other economic institutions, especially in the optimal utilization of avail- 186
able resources. However, measuring efficiency in banks differs from any other economic 187
institution due to its distinct financial activities and difficulty in determining inputs and 188
outputs (Azizi 2014). 189
Islamic finance is a financial method that pursues the Holy Quran path and does 190
not maximize the return on financial assets. Compared to conventional banks, Islamic 191
banks are administrators and guardians of customer money, but the difference is that they 192
share profits and losses with their depositors. The Islamic bank is an associate with their 193
depositors, and an entrepreneur partner, on the other hand, as a recipient of depositor 194
funds for effective direct investment, as opposed to a conventional bank that is merely a 195
creditor and a fund holder. Compliance with the rules of Islamic ethics is a primary concern 196
of the Islamic banking system. All activities within the Islamic financial system shall be 197
regulated by the Islamic ethical standards defined in the Sharia. Suleiman (2000) stated 198
that Islamic banks must abide by a different set of laws which follow the Holy Quran and 199
comply with Muslim community requirements by offering financing forms that are Islamic 200
acceptable. Fundamentally, the Islamic banking system can be described as a just and free 201
mechanism where fairness is the primary objective of the Islamic system. However, it also 202
restricts the rights of the participants in the scheme. While the participants in Islam are free 203
to enter into transactions, this basic principle of independence does not mean unrestricted 204
freedom to enter into contracts and is bound by certain norms such as Riba and Gharar. 205
3.2. Studies Concerning Efficiency 206
Researchers used various approaches to measure banking efficiency. Milhem (2015) 207
measured efficiency using the traditional method, while Sompolos (2018) measured effi- 208
ciency using financial ratio analysis. Tuškan (2016) and Berger (1997) categorized the para-
209 metric methods into three different groups, namely SFA, DFA, and TFA. Non-parametric
210
design techniques can be described as techniques that consider the efficiency guidelines 211
of the Decision-Making Units (DMUs) to produce efficiency measurements (Al-Shammari 212
1998). This approach considers the degree to which the overall performance of financial 213
institutions can be influenced and the rate of DMU quality scores. Evaluation of measure- 214
ments obtained from DMUs for this efficiency calculation shall be specified as efficient 215
units. As a result, it is characterized by different structured outputs and specified inputs. 216
Jreisat (2018)) acquired and analyzed the revenue performance of Islamic banks in South 217
East Asian countries. The level of revenue efficiency was calculated using the DEA method. 218
It has been reported that the level of revenue generation by domestic Islamic banks are now 219
higher than that international Islamic banks. As presented by Avkiran (2015), Dynamic 220
Application DEA (DN-DEA) has been seen in commercial banking, focusing on robustness 221
checking. The study showed how successful benchmark outperforming techniques (DN- 222
DEA) could be used in performance evaluation by banks. According to Emrouznejad (2018), 223
this analysis shows a survey that included the first 40 years of scholarly literature research 224
at DEA. They listed the articles related to DEA from 1978 to the end of 2016, including 225
theories and methodologies, software improvements, and actual applications in various 226
scenarios. In addition, some overview statistics of the growth of the publications, the most 227
used academic papers, authorship analysis, as well as keywords analysis. 228
It was further stated that both traditional and Islamic banks have succeeded in improv- 229
ing their efficiency rates. Kweh (2018) and Mamun (2018), found that Islamic banks had 230
less productivity than conventional banks. Shawtari (2015) study found conflicting results 231
indicating that traditional (or conventional) banks are less effective than Islamic banks. 232
Nevertheless, Abedifar (2016) addressed that most previous studies found no critical gaps 233
in effectiveness between Islamic and traditional banks. 234
There are several findings from previous studies. Jamaluddin (2017) found that more 235
focus is put on technological efficiency in a conventional bank. This demonstrates the 236
importance of writers, scholars, scientists and academics in studying bank performance. 237
This research must also be contrasted between Islamic and traditional banks in order to 238
conclude that it is more successful in the Arab world. As Azizi (2014); Johnes (2014); Bader 239
(2008); Kamarudin (2018) have pointed out, there was no difference between previous 240
research and traditional and Islamic bank results. Abedifar (2016) published the same 241
results as several previous studies showed no significant differences in efficiency between 242
Islamic and conventional banks. Hassan (2009)) conducted a survey entitled "Efficiency of 243
traditional vs Islamic banks: evidence from the Middle East" to assess the discrepancies in 244
the average cost, income and profit scores of traditional vs Islamic banks and to assess the 245
influence of size and age on the expense, profit and benefit performance of the bank sample 246
for cross-accounting. The results have shown no significant differences in the overall output 247
of both conventional and Islamic banks. 248
However, several studies have shown that there have been substantial variations in 249
productivity between Islamic and traditional banks, as stated by Milhem (2015), where 250
Islamic banks have become less competitive than commercial banks. The efficacy of Islamic 251
banks and conventional options in Jordan was examined between 2009 and 2013. It has been 252
proposed that there are differences in production between Islamic and conventional banks 253
in Jordan, where Islamic banks have been found to be less productive than conventional 254
banks. In addition, primary factors leading to disparities in efficiency between Islamic and 255
conventional banks are widely different, while few Islamic banks use technologies similar 256
to and close to industry standards. Conventional banks have also been found to become 257
more risk-effective than Islamic banks. 258
3.3. Studies Concerning Risk Management 259
Kweh (2018) conducted a comparative study for Islamic and Conventional banks’ 260
using DNDEA with an emphasis on risk management impact on banking performance. It 261
was found that conventional banks were more efficient than Islamic banks. The DNSBM 262
model used in this study may be exploited in other study areas elsewhere over the world, 263
according to (Hassan 2018). In addition, this study indicated that extended work is required 264
to decide if the functional Sharia advisory board and governance may affect Islamic banks’ 265
efficiency and can be used to enhance their stability. Nonetheless, the previous research 266
showed conflicting findings, in which some studies revealed significant and positive results 267
regarding Islamic banks (Bashir 2022; Jalbani 2009). In contrast, some studies revealed 268
negative results (Ali 2013), and some stated that Islamic banks are functionally different 269
from conventional banks and therefore the difference remains valid when dealing with bank 270
efficiency (Miah 2017). So this research is to solve the conflicting findings from previous 271
studies. 272
Risk management has become a concern that has gained much attention in recent 273
decades. Hussain (2012) presented empirical evidence of Islamic vs traditional banks 274
and risk management practices within Bahrain. These banks demonstrated an excellent 275
recognition of risk and risk control, and the analysis identified a constructive and vital 276
relationship between risk management strategies and all independent variables. It has 277
also been suggested that Islamic banks have faced higher risks than traditional banks. 278
Ben Selma (2013) researched risk management approaches and techniques in the Tunisian 279
bank Selma, in which a questionnaire was created and validated by 16 selected banks 280
in their study. Nevertheless, the study finding showed that banks needed to select the 281
methods used to quantify credit risk exposures properly. All guarantees, and collateral, 282
were standard strategies used by Tunisian banks to reduce the credit risks involved. Mokni 283
(2015) studied risk management with bank output for Islamic and traditional banks, and 284
findings revealed that an effective risk management system and risk reduction approaches 285
were used in banking sectors within the MENA region. In addition, credit and liquidity 286
risks were the most prominent risks associated with Islamic banks’ conventional risk 287
reduction techniques. 288
3.4. Studies Concerning Intellectual Capital 289
Numerous researchers have discussed the possible value-building of intellectual 290
property. Most scholars believe intellectual capital is a multidimensional term used to 291
characterize intangible assets. Intellectual capital is related to the capacity of the firm 292
to develop, execute and evaluate intangible resources to generate profit, which in turn 293
increases the growth of the company’s activities and results (Dean 2007). Intellectual capital 294
is considered to be the best investment tool for the privileged category of society in terms 295
of expertise and abilities, on the one hand, and the capacity available or generated by 296
organizations, on the other hand, and, in this sense, the emphasis was on intellectual capital 297
as a tool of transformation from the general category to the privileged category of aids in 298
the rebirth of organs. 299
Empirical intellectual capital research can be divided into the reporting of intellectual 300
capital and the calculation of intellectual capital. A substantial amount of intellectual 301
capital research is cross-sectoral and includes an evaluation of the degree to which it exists 302
in organizations. This is because intellectual capital exists in organizations where it is 303
necessary to clarify intellectual capital between aspects of intellectual capital and other 304
resources, including physical and financial resources. The cross-sectoral analysis of the 305
annual reports of corporations in various parts of the world looked at developments in the 306
protection of intellectual property by organizations (Murthy 2011). 307
Kehelwalatenna (2016) addresses the effect of intellectual capital on bank output dur- 308
ing financial crises. The results of the studies have shown that the effect of intellectual 309
capital on firm output during the financial crisis has been inconsistent. The same result 310
was concluded in the Nawaz (2019) report. Nawaz (2019) explores the effect of intellectual 311
capital on the financial output of British Islamic banks. Studies have shown a positive 312
relationship between physical and financial resources employed capacity, human resource 313
ability and output efficiency. In the Arab world, few studies on banks have been undertaken 314
without taking into account the difference between banking systems. Obeidat (2017) found 315
that intellectual capital positively impacted organizational performance. Momani (2019) 316
looked at the Amman Stock Exchange at the possibility of intellectual capital impacting the 317
financial performance of commercial banks. The findings indicate a positive relationship 318
between the components (VAIC) and ROE and Growth Revenue (GR). The findings have 319
shown a significant positive relationship between intellectual capital development and 320
financial performance and market performance in Islamic and Jordanian banks. Due to the 321
conflicting results of previous studies, in which some studies have shown a significant and 322
positive relationship, while some studies have shown a negative relationship, and some 323
studies showed that there is no relation, this study is intended to explore the significance 324
and positive relationship among intellectual capital and bank performance of Islamic and 325
Conventional bank in Arab countries. Al-Musali (2016) analyzed the degree of the intellec- 326
tual capital efficiency of Arab Gulf Cooperation Council (GCC) countries’ list banks using 327
the VAIC method and analyze the hypothesized impact of several corporate governance 328
inputs, bank unique characteristics and personality traits of the banking industry on the 329
performance of intellectual capital. 330
3.5. Studies Concerning Corporate Governance 331
Corporate governance is a set of rules and laws and decisions aimed at achieving 332
good performance by choosing the best approaches to achieve the desired goals (Panda 333
2017). Corporate governance prohibits the administration of companies’ finances from 334
being misused and safeguards shareholder rights. Using Bazel standards to establish value- 335
added corporate governance serves the banking sector and regulates banks Wijethunga 336
(2015). Studies have shown that the effect of corporate governance as a moderator variable 337
on bank performance may be consistent, although it may yield contradictory results. Few 338
studies have focused on the corporate governance of banks (Abedifar 2016). Grassa (2014) 339
have suggested significant variations and disparities in the corporate governance system of
340 Islamic banking in the GCC and South-east Asian countries. However, Wijethunga (2015)
341 found in their analysis that there are similarities and discrepancies in corporate
governance 342 between Islamic and traditional banks. Ulussever (2018) study found that
boards are 343 high in Islamic banks. Given the fact that the core elements of corporate
governance 344 may be related to banks. Various studies have dealt with the effect of
governance on the 345 banking sector, either Islamic or traditional banks. The studies dealt
with the contrast of 346 applications between the banks. Thus, the role of governance in the
relationship between 347 risk management or intellectual capital of Islamic or traditional
banks is not discussed. 348
4. Conceptual Model and Hypothesis Development 349
The framework and hypothesis development in this study is based on the compre- 350
hension of the literature review discussion. The previous empirical literature on Islamic 351
banking focuses on competitiveness, efficiency and risk control, either separately or concern- 352
ing commercial banks (Bitar 2018). Several studies assess the credit effect and operational 353
risk on the output of the banking system. Mokni (2015) concluded in their analysis that 354
there are adequate risk management mechanisms and effective risk strategies in the MENA 355
banking sector. In addition, credit and operational risks have been the most critical threats 356
to both conventional and Islamic banks. In addition, Islamic banks tend to use conventional 357
credit risk reduction techniques extensively. 358
Operational risk factors are replicated in (Ali 2013). The result of the study by Jalbani 359
(2009) found a strong relationship between the Return on Equity (ROE) of Islamic and 360
conventional banks. The study also found that risk management practices in Islamic banks 361
are adequate to mitigate their significant equity-based investments and provide adequate 362
returns to their customers compared to conventional banks. Abdulsalam (2011) found that 363
the lack of effective risk management procedures for both risks is a significant problem 364
faced by Islamic banks. However, Rosman (2013) argue that Islamic banks still need to 365
use more technically advanced risk measurement approaches than conventional banks. 366
Nevertheless, in order to measure the complex risks, such as credit risk in Islamic banking, 367
risk measurement approaches need to be further improved. Islamic banks are also largely 368
complacent in their approaches to risk mitigation as they continue to use risk mitigation 369
techniques that conventional banks widely use. In addition, operating risk can also affect 370
the efficiency of the industry. For instance, operational risks can emerge in Islamic banking 371
operations due to a lack of control and proper management of internal or external events 372
by Islamic banks. Subsequently, the level of productivity in the banks themselves would be 373
affected. Therefore, this analysis would test the following sub-hypothesis: 374
H1: There is a negative relationship between risk management and efficiency in Islamic 375
and Conventional banks operating in the Arab world before and after the Arab spring. 376
H1a: There is a negative relationship between risk management and efficiency in 377
Islamic and Conventional banks operating in the Arab world before and after the Arab 378
spring. 379
H1b: There is a negative and significant relationship between the operational risk on 380
efficiency in Islamic and Conventional banks operating in the Arab world before and after 381
the Arab spring. 382
There are few studies of intellectual capital on efficiency (Mondal 2012; Abdulsalam 383
2011). Ousama (2015) estimated the value-added intellectual coefficient (VAICTM) for 384
Malaysia’s Islamic banking sector’s efficiency performance and investigate the relation- 385
ship between intellectual capital efficiency and financial success. Secondary data from 386
2008, 2009, and 2010 annual reports indicated that human capital is more efficient than 387
structural capital and capital deployed. Additionally, it was discovered that intellectual 388
capital efficiency affects the profitability of Islamic banks. The findings empirically demon- 389
strate that optimising intellectual capital and resources increases bank profitability. Meles 390
(2016) studied the impact of intellectual capital on financial performance in the United 391
States using a large sample of 5,749 commercial banks and more than 40,000 observations 392
covering the period 2005–2012. The study discovered that increasing the efficiency with 393
which intellectual capital is used has a beneficial effect on the financial performance of US 394
banks. Additionally, the findings indicate that human capital efficiency, a subcomponent 395
of intellectual capital efficiency, has a more substantial impact on financial performance 396
than other intellectual capital subcomponents. These findings imply that adopting efficient
397 information management systems that enable institutions to amass the intellectual capital
398 necessary to adapt to an ever-changing environment is an effective way for bank managers
399 and policy-makers to accomplish their objectives. These findings demonstrate that effective
400 utilisation of intellectual capital provides businesses with a competitive edge and is likely
to 401 differentiate one bank from another in terms of efficiency. According to previous
research, 402 this analysis will check the following sub-hypothesis: 403
H2: There is a positive relationship between the intellectual capital on efficiency in 404
Islamic and Conventional banks operating in the Arab world before and after the Arab 405
spring. 406
H2a: There is a positive and significant relationship between human capital and 407
H2b: There is a positive and significant relationship between the structural capital and 410
H2c: There is a positive and significant relationship between the relational capital and 413
The purpose of this study is to examine the moderating effect of corporate governance 416
on the relationship between risk management and intellectual capital on efficiency in order 417
to contribute to resolving the debate in the corporate governance and efficiency literature 418
regarding the existence of a link between corporate governance variables such as board 419
size, role duality, and board independence. Earlier research on the moderating influence 420
of the board of directors discovered that the contradicting effects of risk management and 421
human resources on bank performance were more helpful to the banking industry when a 422
diverse board of directors was in place (Brick 2006). According to Khaoula (2019), qualified 423
directors as persons frequently suggest a judgmental value. It shall appoint a director who 424
is deemed independent of the organization. Khaoula (2019) also consider the value of 425
membership in the independent board of directors. The Board of Directors should also be 426
a combination of competence and independence to represent the needs of the company 427
and its shareholders, emphasizing honesty and competence, as these are the distinguishing 428
features of the Board of Directors. They need to tackle the competitive dynamics of the 429
organization’s markets. According to Iqbal (2017), the director should be independent if 430
he has no ties to the organization, its community, or management that could threaten his 431
exercise of judgement. Thus, according to these definitions, independent directors can be 432
regarded as mediators between internal managers and shareholders. The addition of a 433
higher number of independent directors to the board will increase productivity and thus 434
increase corporate enforcement. 435
The independent director will protect shareholder interests and boost banking perfor- 436
mance by monitoring senior management and advising managers (Adams 2010). Jensen 437
(1993) and Yermack (1996) showed that self-governing boards boost a banks’ efficiency 438
and shareholder capital. In actuality, independent board members are thought to be the 439
best qualified to supervise managers. Independent directors are more likely to safeguard 440
shareholders’ interests.Masulis (2011) demonstrated that operational effectiveness is re- 441
lated to the external director. Indeed, boards comprised of a more significant proportion 442
of independent members would promote increased accountability in the banking sector. 443
Additionally, a higher percentage of independent directors on the board would enhance 444
the company’s competitiveness through the management and the degree of supervision 445
(Adams 2007). 446
Similarly, outside directors are more likely than inside directors to oppose a narrow 447
definition of bank performance based exclusively on financial metrics and insensitive to 448
bank needs. Senior executives’ market management will better understand the added 449
value supplied by outside directors. Typically, boards of directors consist of a diverse 450
group of elected executives that serve as mediators between internal managers and oversee 451
disciplinary action for major organisational concerns (Lanis 2011). By increasing the 452
number of external directors on the board, the board would gain greater flexibility in risk 453
management and intellectual property protection, strengthening company policy. Thus, 454
the relationship between risk management and intellectual capital and bank efficiency can 455
benefit board member independence (Armstrong 2012). According to previous research, 456
this study will check the following sub-hypothesis: 457
H3: Corporate governance moderates the relationship between risk management, 458
intellectual capital and efficiency in Islamic and Conventional banks operating in the Arab 459
world before and after the Arab spring. 460
H3a: Size of the board of directors moderates the relationship between risk manage- 461
ment and efficiency in Islamic and Conventional banks operating in the Arab world before 462
and after the Arab spring. 463
H3b: Role duality moderates the relationship between risk management and efficiency 464
in Islamic and Conventional banks operating in the Arab world before and after the Arab 465
spring. 466
H3c: Independence Board of Directors moderates the relationship between risk man- 467
agement and efficiency in Islamic and Conventional banks operating in the Arab World 468
before and after the Arab spring. 469
H3d: Size of the board of directors moderates the relationship between intellectual 470
capital and efficiency in Islamic and Conventional banks operating in the Arab world before 471
and after the Arab spring. 472
H3e: Role duality moderates the relationship between intellectual capital and efficiency 473
in Islamic and Conventional banks operating in the Arab World before and after the Arab 474
spring. 475
H3f: Independence Board of Directors moderates the relationship between intellectual 476
capital and efficiency in Islamic and Conventional banks operating in the Arab World 477
before and after the Arab spring. 478
In conclusion, the study’s theoretical framework yielded three key hypotheses. Based 479
on the proposed framework, several hypotheses are formulated. Consequently, sub- 480
hypotheses are constructed to reflect the linkage illustrated within the framework. 481
The research framework is shown in Figure 2. The research framework includes four 482
main variables: risk Management, intellectual capital, corporate governance and bank 483
efficiency. Risk Management and intellectual capital are the independent variables of 484
this study, corporate governance acts as the moderating variable, and efficiency is the 485
dependent variable of this study. Thus, the control variables in this study are bank size, 486
bank age and gross domestic product. 487
Figure 2. Conceptual Framework.
5. Conclusion and Future Research 488
The conceptual research is an attempt to construct a comprehensive framework. It can 489
be concluded that the objectives of this paper are to measure banking efficiency between 490
conventional and Islamic banks in several Arab countries. that have experienced both an 491
economic downturn and the political changes of the Arab Spring. that will further help in 492
improving the ailing economy and efficiency in the Arab world. For future study, this model 493
will be applied to the Islamic and Conventional banking sectors in four countries: Jordan, 494
Lebanon, Tunisia, and Egypt. The analysis focuses on risk management and intellectual 495
capital as independent variables and corporate governance as a moderating variable using 496
DEA. The DEA analysis can reduce banks’ efficiency and maximize banks’ benefits from 497
knowledge. The banking data, such as annual reports and financial statements, will be 498
collected from each central bank country using STATA software to be analyzed. The 499
empirical result of this study is expected to contribute to the existing literature on banking 500
efficiency in Arab countries. Then, the results will determine which banking is more 501
efficient. 502
Author Contributions: For research articles with several authors, a short paragraph specifying their 503
individual contributions must be provided. The following statements should be used “Conceptualiza- 504
tion, X.X. and Y.Y.; methodology, X.X.; software, X.X.; validation, X.X., Y.Y. and Z.Z.; formal analysis, 505
X.X.; investigation, X.X.; resources, X.X.; data curation, X.X.; writing—original draft preparation, 506
X.X.; writing—review and editing, X.X.; visualization, X.X.; supervision, X.X.; project administration, 507
X.X.; funding acquisition, Y.Y. All authors have read and agreed to the published version of the 508
manuscript.”, please turn to the CRediT taxonomy for the term explanation. Authorship must be 509
limited to those who have contributed substantially to the work reported. 510
Funding: Please add: “This research received no external funding” or “This research was funded 511
by NAME OF FUNDER grant number XXX.” and and “The APC was funded by XXX”. Check 512
carefully that the details given are accurate and use the standard spelling of funding agency names at 513
https://search.crossref.org/funding, any errors may affect your future funding. 514

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A Conceptual Framework of The Impact of Arabic Spring

antecedent variables, as well as corporate governance as a moderating variable. Data Envelopment 8

Capital; Corporate Governance 14

of the Creative Commons Attri-

Version December 12, 2022 submitted to Int. J. Financial Stud. https://www.mdpi.com/journal/ijfs

Figure 1 is followed in the literature. 38

Secondly, the service provider selects efficiency measurement approaches: a) para- 48

1993), which utilizes econometric techniques; and b) non-parametric approach such as 51

Financial institution efficiency studies employ non-parametric or parametric approaches 56

efficiency and measurement methods. In particular, Figure 1 illustrates the decision a 65

approaches: a) intermediation approach, which is based on the intermediation concept, 69

Figure 1. Systematic approach For measuring banking efficiency.

3. Literature Review 101

3.1. Islamic Banking and The Effect of Arab Spring 171

management strategies and structure in the banking system. 178

3.2. Studies Concerning Efficiency 206

3.3. Studies Concerning Risk Management 259

reduction techniques. 288

3.4. Studies Concerning Intellectual Capital 289

Numerous researchers have discussed the possible value-building of intellectual 290

the rebirth of organs. 299

in organizations. This is because intellectual capital exists in organizations where it is 303

protection of intellectual property by organizations (Murthy 2011). 307

performance of intellectual capital. 330

3.5. Studies Concerning Corporate Governance 331

4. Conceptual Model and Hypothesis Development 349

Figure 2. Conceptual Framework.

5. Conclusion and Future Research 488

The conceptual research is an attempt to construct a comprehensive framework. It can 489

https://search.crossref.org/funding, any errors may affect your future funding. 514

Union. Journal of financial stability, 8(4), 292-302. 520

Malmquist index. Humanomics. 532

journal of finance, 32(4), 1251-1266. 538

41(1), 3-15. 540

research, 207(2), 1122-1129. 542

empirical analysis. Review of Economics & Finance, 7(1), 80-97. 544

Financial Management, 2(1), 63. 546

analysis. Research in Higher Education, 58(5), 469-496. 564

Economics, 22(12), 1003-1016. 566

Restructuring, 51(1), 69-95. 571

Pacific. Applied Economics, 50(41), 4427-4446. 575

Economy in Central and Eastern Europe, 98-116. 579

review. International Journal of Law and Management. 583

Studies, 8(3-4), 273-298. 625

independent studies and research, 7(2), 67-70. 644

Financial Crisis: Reputation, Stability and Risks, 106-123. 646

Learning and Intellectual Capital, 12(1). 650

framework and survey. Journal of economic literature, 48(1), 58-107. 661

assumptions. Journal of productivity Analysis, 4(3), 261-292. 682

Performance of Public Enterprises: Concepts and Measurements. 684

research, 3(4), 339-338. 686

Cobb, C. W., & Douglas, P. H. (1928). A theory of production. 687

independent studies and research, 7(2), 67-70. 691

countries. Future Business Journal, 3(2), 172-185. 693

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