The Impact of Political Stability and Firm-Specific Variables on the Performance of Islamic Banks in Pakistan

Abstract

Financial sector of a country plays pivotal role in the economic advancement. Therefore, the aim of this study is to analyze the performance determinants of 5 Islamic banks in Pakistan which remain active from year 2006 to 2018. By applying the Random Effect Model (REM), this study concluded that leverage and size of Islamic banks contributed significantly towards their performance. However, Islamic banks’ performance remained unaffected with respect to change in political stability level and liquidity. Therefore, this study has implication for Islamic banks managers that instead of considering political environment of Pakistan, focus should be made on bank specific matters.