ABSTRACT

Market discipline is one of the main pillars of stability and resiliency in the banking system. The mechanism of market discipline primarily relies on the role of depositors who receive timely information and act accordingly through their respective accounts. In this study, we use generalized method of moments panel technique for 44 Islamic banks across different regions to research the presence of market discipline in the global Islamic banking system, focusing on the behaviour of the PSIA holders and their role in the governance of Islamic banks. These results have a significant policy implication in reviewing the framework governing the Islamic banks.

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