Nonlinear Relationship between Financial Development and Economic Growth: Evidence from Post Global Financial Crisis Panel Data

Bahri, Elya Nabila Abdul; Nor, Abu Hassan Shaari Md; Sarmidi, Tamat; Nor, Nor Hakimah Haji Mohd

doi:10.17576/jem-2018-5201-2

Cited by 7 publications

(9 citation statements)

References 77 publications

(144 reference statements)

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“…Accordingly, the signs of coefficients confirm a u-shaped profile for both type of Islamic financing and industrial output growth for the selected models. After reaching a turning point, the development of IPF and ICF boosted production growth upholds the preposition of 'more finance more growth' (Abdul Bahri et al, 2018). The empirical finding of the study supports Schumpeter (1912) argument regarding the vitality of finance, which is still relevant in today's economy.…”

Section: Table 3 Summary Statssupporting

confidence: 64%

“…Supporting the hypotheses 'too much finance' proposed by Arcand et al (2015) and Samargandi et al (2015). If, on the other hand, signs of the parameter β1 and β2 are negative and positive, respectively, with significant values demonstrating a u-shaped profile, then it does support the hypothesis 'more finance more growth' evidenced by Abdul Bahri et al (2018) and Ustarz and Fanta (2021).…”

Section: Table 2 Possible Outcomesmentioning

confidence: 81%

“…In this study, u-shaped profile also demonstrated that financial development may stimulate industrial output growth even if it exceeds a certain threshold level of Islamic decomposed financing in Malaysia. Interestingly, the evidence contradicted the hypothesis 'too much finance' proposed by Arcand et al (2015) and Samargandi et al (2015), but advocate 'more finance more growth' highlighted by Abdul Bahri et al (2018). Figure 1 illustrates the u-shaped profile for Islamic decomposed financing to help with understanding the nonlinear association between industrial output and the development of Islamic producer financing and Islamic consumer financing as well.…”

Section: Unit Root Testmentioning

confidence: 90%

“…On the other hand, Abdul Bahri, Nor, Sarmidi, and Haji Mohd Nor (2018) reveals that economic growth begins to accelerate once it has surpassed a certain threshold point of financing, resulting in a u-shaped profile. According to Ruiz (2018), economies above the critical threshold level grew faster, while those below the threshold point grew less.…”

Section: Literature On Threshold Effect Of Financingmentioning

confidence: 99%

“…A quadratic term, as used by Samargandi et al (2015) and Abdul Bahri et al (2018) to explore the nonlinear influence of financing, has been incorporated to investigate the propositions 'too much finance' and 'more finance more growth'.…”

Section: Table 1 Description Of the Variablesmentioning

confidence: 99%

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Accelerating Industrial Output Growth through Islamic Bank Decomposed Financing Optimization in Malaysia

2022

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Literature shows two hypothesis ‘More finance more growth’ formed u-shape and ‘too much finance’ formed an inverted u-shape profile. Existing literature shows contradicting findings on finance growth nexus by taking only a single indicator of total financing, where financial expansion is detrimental to growth if it surpasses a specific threshold point. This gap is addressed in this study by decomposing Islamic financing into Islamic producer financing (IPF) and Islamic consumer financing (ICF) and its quadratic impact on industrial output growth in Malaysia. Autoregressive Distributive lag (ARDL) approach is applied over the period of 2008; Q1 to 2020; Q4 and, in order to visualize the effect of moderator to the nonlinear model, this study have used Dawson (2014) approach. This study demonstrates a u-shaped relationship between Islamic decomposed financing and sectoral output growth, highlighting that financial development starts to accelerate the growth, once it surpassed the calculated threshold point. With the intention to determine the right financial ceiling to restrict financial activity, threshold points are crucial to the regulators. Our findings imply that policymakers should not only enhance financing, but also improve the quality of the financial system for potential growth. This necessitates the simultaneous expansion and tightening of financial rules, as well as the attendant supervision and surveillance of financial activities, in order to preserve the integrity of finance growth nexus and avoid the ‘vanishing effect’ which may lead to the incidence of future economic crises. This study enriches the discussion on Islamic decomposed financing and the threshold effect to contribute to the economic growth of the country.

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Section: Table 3 Summary Statssupporting

confidence: 64%

Section: Table 2 Possible Outcomesmentioning

confidence: 81%

Section: Unit Root Testmentioning

confidence: 90%

Section: Literature On Threshold Effect Of Financingmentioning

confidence: 99%

Section: Table 1 Description Of the Variablesmentioning

confidence: 99%

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Accelerating Industrial Output Growth through Islamic Bank Decomposed Financing Optimization in Malaysia

2022

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Impact of Derivatives on Firm Value: Evidence on Shariah and Non-Shariah Compliant Firms

Zamzamin

Haron

Othman

et al. 2022

Future of Organizations and Work After the 4th Industrial Revolution

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Non-linear relationship between foreign currency derivatives and firm value: evidence on Sharīʿah compliant firms

Zamzamir@Zamzamin

Haron

Ulum³

et al. 2021

IES

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PurposeThis study examines the impact of hedging on firm value of Sharīʿah compliant firms (SCFs) in a non-linear framework.Design/methodology/approachThis study employs the system-GMM for dynamic panel data to examine the influence of derivatives usage on firm value (Tobin's Q, ROA and ROE). The sample comprised of 59 non-financial SCFs engaged in derivatives from 2000 to 2017 (18 years). The Sasabuchi-Lind-Mehlum (SLM) test for U-shaped is performed to confirm the existence of the non-linear relationship.FindingsThis study concludes that hedging significantly contributes to firm value of SCFs based on the non-linear framework. This study suggests that, first, the non-linear relationship occurs due to the different degree of derivatives usage and risk. Second, firms practice selective hedging to maintain the upside potential of firm value.Research limitations/implicationsThis study has important implications. First, the importance of risk management via derivatives to increase firm value, second, the evidence of selective hedging from the non-linear relationship between derivatives and firm value and third, the need for quality reporting on derivatives engagement by firms in line with the required accounting standard on derivatives.Originality/valueThis study fills the gap in the literature in relation to the risk management strategies of SCFs in three aspects. First, re-examines the relationship using recent data. Second, examines the relationship in the non-linear framework as the limited studies found in the literature on Malaysian firms are only based on linear relationship. Third, determines whether hedging undertaken by firms is optimal as this can only be addressed using the non-linear framework. This study is robust to the various definitions of firm value (Tobin's Q, ROA and ROE) and non-linear methodologies.

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Nonlinear Relationship between Financial Development and Economic Growth: Evidence from Post Global Financial Crisis Panel Data

Cited by 7 publications

References 77 publications

Accelerating Industrial Output Growth through Islamic Bank Decomposed Financing Optimization in Malaysia

Accelerating Industrial Output Growth through Islamic Bank Decomposed Financing Optimization in Malaysia

Impact of Derivatives on Firm Value: Evidence on Shariah and Non-Shariah Compliant Firms

Non-linear relationship between foreign currency derivatives and firm value: evidence on Sharīʿah compliant firms

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