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Naiwei Chen, Hsin-yu Liang and Min-teh Yu
 
''Control of corruption, diversification and asset quality of Islamic and conventional banks''
( 2016, Vol. 36 No.3 )
 
 
The study examines whether and how control of corruption (CC) influences asset quality of banks directly and indirectly through diversification. A review of banks in three Islamic countries (Indonesia, Malaysia, and Pakistan) from 2006 to 2012 reveals that CC has a positive effect on asset quality of Islamic banks only. In addition, diversification typically has a negative effect on asset quality, but such a negative effect weakens as CC becomes more effective, particularly for Islamic banks. Furthermore, the modifying effect of CC is particularly found in more corrupt countries (Indonesia and Pakistan) as opposed to a less corrupt country (Malaysia).
 
 
Keywords: corruption; diversification; asset quality; agency problem; Islamic banks
JEL: G2 - Financial Institutions and Services: General
G3 - Corporate Finance and Governance: General
 
Manuscript Received : Mar 21 2016 Manuscript Accepted : Jul 08 2016

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