Capital Structure and Liquidity as Measures of Efficiency: The Case of Islamic Banks

Abstract

The main objective of this paper is to improve our understanding of the capital structure and liquidity position of Islamic banks. For these institutions, an adequate amount of liquid assets and an adequate amount of capital are essential to stay solvent and avoid bankruptcy. Financial institutions’ amounts of capital and liquid assets have also been identified as valuable shields during financial crises. Unlike some of their Western counterparts, most Islamic banks have been able to circumvent the negative impacts of the 2008 crisis. Our paper reviews the recent and relevant publications about the impact of the capital structure and the liquidity on financial institutions efficiency. It focuses on the Islamic banking system which has grown significantly.