Case Study of the Relationship Between Islamic Finance Modes and Return on Assets in Dubai Islamic Bank

Abstract

The Islamic financial model and financial performance in UAE (Dubai Islamic Bank) are studied. The optimal lag length detected depends on the lowest values of Akaike information criterion (-5.168960), Schwartz Bayesian criterion (-0.218406) and Hannan-Quinn information criterion (-3.618508) tests. The result of unit root test, the Augmented Dickey-Fuller and Phillips-Perron for UAE (Dubai Islamic Bank) case confirmed that all the study variables (Return on Equity, Murabaha, Musharakah, Mudharabah, Istisna, Ijarah and Wakalah) are stationary at their respective levels in both Augmented Dickey-Fuller and Phillips-Perron tests at I(1). The longrun and short-run relationship results between Islamic finance products showed that the Musharakah, Murabaha, Mudharabah and Istisna variables are positively associated with the return on assets. The result of the bounds co-integration F-statistics test showed that the null hypothesis has been rejected for all the study models due to the F-statistics values are bigger than the bounds critical values. Wakalah variable fell in the range between I(0) and I(1).

Keywords: Islamic finance, ROA, PP, Test.