What is it about?

As economic freedom of a country changes, banks also change their behaviour in terms of plans and decisions related to their risk-taking behaviour. Accordingly, this study investigates the impact of economic freedom index and six relevant subcomponents of it on the risk-taking behaviour of two types of banks (Islamic and conventional) operating in the dual banking system of Malaysia.

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Why is it important?

Setting an effective level of economic freedom is a crucial policy given that banks' conduct is influenced by the degree of a country's economic freedom. Hence, it is important for regulatory bodies to build an economic freedom index that services and keep banks risk-taking behaviour within reasonable boundaries.

Perspectives

This study investigates the role played by economic freedom in impacting risk-taking behaviour of banks operating in a dual banking system. It is important as it provides insights into the impact of economic openness on risk-taking, therefore assisting in developing an economic freedom index that better serves the stability of banks in light of risk-taking behaviour.

PhD Rafik Harkati
IIUM Institute of Islamic Banking and Finance

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This page is a summary of: Influence of economic freedom and its subcomponents on risk-taking behavior, Review of Behavioral Finance, November 2019, Emerald, DOI: 10.1108/rbf-09-2019-0119.
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