Equity-Based vs Debt-Based Financing: Which One is More Profitable for Islamic Banks in Indonesia?
DOI:
https://doi.org/10.14421/jbmib.v3i1.2341Keywords:
Equity-Based Financing, Debt-Based Financing, Islamic Bank ProfitabilityAbstract
Purpose : The debt-based syndrome is mushrooming across the Islamic Banks worldwide. However, in Indonesia equity-based financing has significant increase in the las several years. Thus, the study aims to examine whether debt-based financing or equity-based financing is more profitable in Indonesia Islamic Banks.
Methodology : Fixed effect model (FEM) is used to measure the panel data. For robustness test LSDV is used.
Findings : The result revealed that debt-based financing has negative significant influence on the profitability of Islamic Banks (ROA and ROE), while equity-based financing has positive significant influence on profitability of Islamic Banks (ROA and ROE). Moreover, the results are robust.
Originality : Present paper attempt to capture the actual conditions of Islamic Banks in Indonesia through the samples used. As the best of author knowledge, this is the first paper which compare between debt-based and equity-based on the profitability of Islamic banks in Indonesia.
Research Implications : This research provides some practical contributions for policymaker to boost equity-based financing in dual banking system.
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