research paper on financial performance

Information

• Author Services

Initiatives

You are accessing a machine-readable page. In order to be human-readable, please install an RSS reader.

All articles published by MDPI are made immediately available worldwide under an open access license. No special permission is required to reuse all or part of the article published by MDPI, including figures and tables. For articles published under an open access Creative Common CC BY license, any part of the article may be reused without permission provided that the original article is clearly cited. For more information, please refer to https://www.mdpi.com/openaccess .

Feature papers represent the most advanced research with significant potential for high impact in the field. A Feature Paper should be a substantial original Article that involves several techniques or approaches, provides an outlook for future research directions and describes possible research applications.

Feature papers are submitted upon individual invitation or recommendation by the scientific editors and must receive positive feedback from the reviewers.

Editor’s Choice articles are based on recommendations by the scientific editors of MDPI journals from around the world. Editors select a small number of articles recently published in the journal that they believe will be particularly interesting to readers, or important in the respective research area. The aim is to provide a snapshot of some of the most exciting work published in the various research areas of the journal.

Original Submission Date Received: .

• Active Journals
• Find a Journal
• Journal Proposal
• Proceedings Series
• For Authors
• For Reviewers
• For Editors
• For Librarians
• For Publishers
• For Societies
• For Conference Organizers
• Open Access Policy
• Institutional Open Access Program
• Special Issues Guidelines
• Editorial Process
• Research and Publication Ethics
• Article Processing Charges
• Testimonials
• Preprints.org
• SciProfiles
• Encyclopedia

Article Menu

• Subscribe SciFeed
• Recommended Articles
• Google Scholar
• on Google Scholar
• Table of Contents

Find support for a specific problem in the support section of our website.

Please let us know what you think of our products and services.

Visit our dedicated information section to learn more about MDPI.

JSmol Viewer

Knowledge mapping of corporate financial performance research: a visual analysis using cite space and ucinet.

1. Introduction and Scope of Review

2. method and data description, 3. results and analysis, 3.1. mapping and analysis of countries, 3.2. mapping and analysis of authors and cited authors, 3.3. mapping and analysis of journals, 3.4. mapping and analysis of keywords, 3.4.1. high-frequency keywords, 3.4.2. extraction of financial performance based on keywords, 3.4.3. theme evolution trend based on keywords, 4. conclusions, author contributions, acknowledgments, conflicts of interest.

• Taylor, F.W. The Principles of Scientific Management ; Harper & Brothers: New York, NY, USA, 1911. [ Google Scholar ]
• Johnson, H.T. Management Accounting in an Early Integrated Industrial: E. I. duPont de Nemours Powder Company, 1903–1912. Bus. Hist. Rev. 1975 , 49 , 184–204. [ Google Scholar ] [ CrossRef ]
• Beaver, W.; Kettler, P.; Scholes, M. The association between market determined and accounting determined risk measures. Account. Rev. 1970 , 45 , 654–682. [ Google Scholar ]
• Vernon, J.M. Market Structure and Industrial Performance ; Allyn and Bacon: Boston, MA, USA, 1972. [ Google Scholar ]
• Dalton, D.R.; Todor, W.D.; Spendolini, M.J.; Fielding, G.J.; Porter, L.W. Organization structure and performance: A critical review. Acad. Manag. Rev. 1980 , 5 , 49–64. [ Google Scholar ] [ CrossRef ]
• Capon, N.; Jhon, U.; Farley, J.M.H. Corporate Financial Performance and the Role of Envirnoment, Strategy, and Organization ; Columbia University Working Paper; Columbia University: New York, NY, USA, 1987. [ Google Scholar ]
• Gale, B.T.; Branch, B.S. Concentration versus market share: Which determines performance and why does it matter. Antitrust Bull. 1982 , 27 , 83. [ Google Scholar ]
• Capon, N.; Farley, J.U.; Hoenig, S. Determinants of financial performance: A meta-analysis. Manag. Sci. 1990 , 36 , 1143–1159. [ Google Scholar ] [ CrossRef ] [ Green Version ]
• Chandler, A. The Continental Bank Middle Market Roundtable. J. Appl. Corp. Financ. 1991 , 4 , 6–29. [ Google Scholar ]
• Stern, J.M.; Stewart, G.B., III; Chew, D.H. The EVA ® financial management system. J. Appl. Corp. Financ. 1995 , 8 , 32–46. [ Google Scholar ] [ CrossRef ]
• Kaplan, R.S.; Norton, D.P. Using the Balanced Scorecard as a Strategic Management System ; Harvard Business Review: Boston, MA, USA, 1996. [ Google Scholar ]
• Lenz, R.T. ‘Determinants’ of organizational performance: An interdisciplinary review. Strateg. Manag. J. 1981 , 2 , 131–154. [ Google Scholar ] [ CrossRef ]
• White, R.E.; Hamermesh, R.C. Toward a model of business unit performance: An integrative approach. Acad. Manag. Rev. 1981 , 6 , 213–223. [ Google Scholar ] [ CrossRef ]
• Arlow, P.; Gannon, M.J. Social responsiveness, corporate structure, and economic performance. Acad. Manag. Rev. 1982 , 7 , 235–241. [ Google Scholar ] [ CrossRef ]
• Venkatraman, N.; Ramanujam, V. Measurement of business performance in strategy research: A comparison of approaches. Acad. Manag. Rev. 1986 , 11 , 801–814. [ Google Scholar ] [ CrossRef ] [ Green Version ]
• Zahra, S.A.; Pearce, J.A. Boards of directors and corporate financial performance: A review and integrative model. J. Manag. 1989 , 15 , 291–334. [ Google Scholar ] [ CrossRef ]
• Orlitzky, M.; Benjamin, J.D. Corporate social performance and firm risk: A meta-analytic review. Bus. Soc. 2001 , 40 , 369–396. [ Google Scholar ] [ CrossRef ]
• Orlitzky, M.; Schmidt, F.L.; Rynes, S.L. Corporate social and financial performance: A meta-analysis. Organ. Stud. 2003 , 24 , 403–441. [ Google Scholar ] [ CrossRef ]
• Margolis, J.D.; Walsh, J.P. Misery loves companies: Rethinking social initiatives by business. Adm. Sci. Q. 2003 , 48 , 268–305. [ Google Scholar ] [ CrossRef ] [ Green Version ]
• Callan, S.J.; Thomas, J.M. Corporate financial performance and corporate social performance: An update and reinvestigation. Corp. Soc. Responsib. Environ. Manag. 2009 , 16 , 61–78. [ Google Scholar ] [ CrossRef ]
• Wang, Q.; Dou, J.; Jia, S. A meta-analytic review of corporate social responsibility and corporate financial performance: The moderating effect of contextual factors. Bus. Soc. 2016 , 55 , 1083–1121. [ Google Scholar ] [ CrossRef ]
• Otlet, P. Traité de Documentation: Le Livre Sur le Livre, Théorie et Pratique ; Editiones Mundaneum: Bruxelles, Belgium, 1934. [ Google Scholar ]
• Pritchard, A. Statistical bibliography or bibliometrics. J. Doc. 1969 , 25 , 348–349. [ Google Scholar ]
• Chen, C. CiteSpace II: Detecting and visualizing emerging trends and transient patterns in scientific literature. J. Am. Soc. Inf. Sci. Technol. 2006 , 57 , 359–377. [ Google Scholar ] [ CrossRef ] [ Green Version ]
• Borgatti, S.P.; Everett, M.G.; Freeman, L.C. Ucinet for Windows: Software for social network analysis. Harvard MA Anal. Technol. 2002 , 88. [ Google Scholar ]
• Surroca, J.; Tribó, J.A.; Waddock, S. Corporate responsibility and financial performance: The role of intangible resources. Strateg. Manag. J. 2010 , 31 , 463–490. [ Google Scholar ] [ CrossRef ]
• Barnett, M.L.; Salomon, R.M. Does it pay to be really good? Addressing the shape of the relationship between social and financial performance. Strateg. Manag. J. 2012 , 33 , 1304–1320. [ Google Scholar ] [ CrossRef ]
• Inoue, Y.; Lee, S. Effects of different dimensions of corporate social responsibility on corporate financial performance in tourism-related industries. Tour. Manag. 2011 , 32 , 790–804. [ Google Scholar ] [ CrossRef ]
• Flammer, C. Does corporate social responsibility lead to superior financial performance? A regression discontinuity approach. Manage. Sci. 2015 , 61 , 2549–2568. [ Google Scholar ] [ CrossRef ] [ Green Version ]
• Saeidi, S.P.; Sofian, S.; Saeidi, P.; Saeidi, S.P.; Saaeidi, S.A. How does corporate social responsibility contribute to firm financial performance? The mediating role of competitive advantage, reputation, and customer satisfaction. J. Bus. Res. 2015 , 68 , 341–350. [ Google Scholar ] [ CrossRef ]
• Post, C.; Byron, K. Women on boards and firm financial performance: A meta-analysis. Acad. Manag. J. 2015 , 58 , 1546–1571. [ Google Scholar ] [ CrossRef ]
• Qiu, Y.; Shaukat, A.; Tharyan, R. Environmental and social disclosures: Link with corporate financial performance. Br. Account. Rev. 2016 , 48 , 102–116. [ Google Scholar ] [ CrossRef ] [ Green Version ]
• Lin, C.; Sanders, K.; Sun, J.; Shipton, H.; Mooi, E.A. From customer-oriented strategy to organizational financial performance: The role of human resource management and customer-linking capability. Br. J. Manag. 2016 , 27 , 21–37. [ Google Scholar ] [ CrossRef ]
• Herzallah, A.M.; Gutiérrez-Gutiérrez, L.; Munoz Rosas, J.F. Total quality management practices, competitive strategies and financial performance: The case of the Palestinian industrial SMEs. Total Qual. Manag. Bus. Excell. 2014 , 25 , 635–649. [ Google Scholar ] [ CrossRef ]
• Peng, C.-W.; Yang, M.-L. The effect of corporate social performance on financial performance: The moderating effect of ownership concentration. J. Bus. Ethics 2014 , 123 , 171–182. [ Google Scholar ] [ CrossRef ]
• Stewart, G. Supply-chain operations reference model (SCOR): The first cross-industry framework for integrated supply-chain management. Logist. Inf. Manag. 1997 . [ Google Scholar ] [ CrossRef ]
• Pyke, D.; Johnson, M. Supply Chain Management: Integration and Globalization in the Age of eBusiness. SSRN Electron. J. 2001 . [ Google Scholar ] [ CrossRef ] [ Green Version ]
• Huang, S.H.; Sheoran, S.K.; Keskar, H. Computer-assisted supply chain configuration based on supply chain operations reference (SCOR) model. Comput. Ind. Eng. 2005 , 48 , 377–394. [ Google Scholar ] [ CrossRef ]
• Flynn, B.; Wu, S.; Melnyk, S. Operational capabilities: Hidden in plain view. Bus. Horiz. 2010 , 53 , 247–256. [ Google Scholar ] [ CrossRef ]
• Torres, I.; Gutierrez Gutierrez, L.; Ruiz-Moreno, A. Boosting sustainability and financial performance: The role of supply chain controversies. Int. J. Prod. Res. 2018 , 1–16. [ Google Scholar ] [ CrossRef ]
• Pomering, A.; Dolnicar, S. Assessing the Prerequisite of Successful CSR Implementation: Are Consumers Aware of CSR Initiatives? J. Bus. Ethics 2009 , 85 , 285–301. [ Google Scholar ] [ CrossRef ]
• Vanhamme, J.; Lindgreen, A.; Reast, J.; Popering, N. To Do Well by Doing Good: Improving Corporate Image Through Cause-Related Marketing. J. Bus. Ethics 2012 , 109 . [ Google Scholar ] [ CrossRef ]
• Heidary Dahooie, J.; Zavadskas, E.K.; Vanaki, A.S.; Firoozfar, H.R.; Lari, M.; Turskis, Z. A new evaluation model for corporate financial performance using integrated CCSD and FCM-ARAS approach. Econ. Res. Istraživanja 2019 , 32 , 1088–1113. [ Google Scholar ] [ CrossRef ]
• Miroshnychenko, I.; Barontini, R.; Testa, F. Green practices and financial performance: A global outlook. J. Clean. Prod. 2017 , 147 , 340–351. [ Google Scholar ] [ CrossRef ] [ Green Version ]
• Vu, M.-C.; Phan, T.; Le, N. Relationship between board ownership structure and firm financial performance in transitional economy: The Vietnamese transition. Res. Int. Bus. Financ. 2017 , 45 . [ Google Scholar ] [ CrossRef ]
• Liao, Z. Corporate culture, environmental innovation and financial performance. Bus. Strateg. Environ. 2018 , 27 . [ Google Scholar ] [ CrossRef ]

Click here to enlarge figure

Share and Cite

Xue, W.; Li, H.; Ali, R.; Rehman, R.U. Knowledge Mapping of Corporate Financial Performance Research: A Visual Analysis Using Cite Space and Ucinet. Sustainability 2020 , 12 , 3554. https://doi.org/10.3390/su12093554

Xue W, Li H, Ali R, Rehman RU. Knowledge Mapping of Corporate Financial Performance Research: A Visual Analysis Using Cite Space and Ucinet. Sustainability . 2020; 12(9):3554. https://doi.org/10.3390/su12093554

Xue, Wuzhao, Hua Li, Rizwan Ali, and Ramiz Ur Rehman. 2020. "Knowledge Mapping of Corporate Financial Performance Research: A Visual Analysis Using Cite Space and Ucinet" Sustainability 12, no. 9: 3554. https://doi.org/10.3390/su12093554

Article Metrics

Article access statistics, further information, mdpi initiatives, follow mdpi.

Subscribe to receive issue release notifications and newsletters from MDPI journals

Click through the PLOS taxonomy to find articles in your field.

For more information about PLOS Subject Areas, click here .

Loading metrics

Open Access

Peer-reviewed

Research Article

Cash flow management and its effect on firm performance: Empirical evidence on non-financial firms of China

Roles Investigation

Affiliation School of Accounting, Xijing University, Xi’an City, Shaanxi Province, People’s Republic of China

Affiliation Department of Economics and Management Sciences, NED University of Engineering & Technology, Karachi City, Pakistan

* E-mail: [email protected]

Affiliation Department of Business and Economics, University of Almeria, Almería, Spain

• Fahmida Laghari, 
• Farhan Ahmed, 
• María de las Nieves López García

• Published: June 20, 2023
• https://doi.org/10.1371/journal.pone.0287135
• Reader Comments

The main purpose of this research is to investigate the impact of changes in cash flow measures and metrics on firm financial performance. The study uses generalized estimating equations (GEEs) methodology to analyze longitudinal data for sample of 20288 listed Chinese non-financial firms from the period 2018:q2-2020:q1. The main advantage of GEEs method over other estimation techniques is its ability to robustly estimate the variances of regression coefficients for data samples that display high correlation between repeated measurements. The findings of study show that the decline in cash flow measures and metrics bring significant positive improvements in the financial performance of firms. The empirical evidence suggests that performance improvement levers (i.e. cash flow measures and metrics) are more pronounced in low leverage firms, suggesting that changes in cash flow measures and metrics bring more positive changes in low leverage firms’ financial performance relatively to high leveraged firms. The results hold after mitigating endogeneity based on dynamic panel system generalized method of moments (GMM) and sensitivity analysis considering the robustness of main findings. The paper makes significant contribution to the literature related to cash flow management and working capital management. Since, this paper is among few to empirically study, how cash flow measures and metrics are related to firm performance from dynamic stand point especially from the context of Chinese non-financial firms.

Citation: Laghari F, Ahmed F, López García MdlN (2023) Cash flow management and its effect on firm performance: Empirical evidence on non-financial firms of China. PLoS ONE 18(6): e0287135. https://doi.org/10.1371/journal.pone.0287135

Editor: Chenguel Mohamed Bechir, Universite de Kairouan, TUNISIA

Received: February 23, 2023; Accepted: May 31, 2023; Published: June 20, 2023

Copyright: © 2023 Laghari et al. This is an open access article distributed under the terms of the Creative Commons Attribution License , which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.

Data Availability: The data used in this study is taken from China Stock Market and Accounting Research (CSMAR) database.

Funding: Funded studies the grant has been awarded to the author María de la Nieves López García from the grant PID2021-127836NB-I00 (Spanish Ministry of Science and Innovation and FEDER). The funders had no role in study design, data collection and analysis, decision to publish, or preparation of the manuscript.

Competing interests: The authors have declared that no competing interests exist.

Introduction

Firms’ efficient cash flow management is significant tool to enhance financial performance [ 1 , 2 ]. Exercising proper management of cash flow is vital to the persistence of business [ 3 ]. Cash flow management is primarily concerned with identifying effective policies that balance customer satisfaction and service costs [ 4 ]. Firms manage efficiently of cash flows via working capital by balancing liquidity and profitability [ 5 – 7 ]. Working capital management, which is the main source of firm cash flow has significant importance in the context of China, where firms are restricted with limited access to external capital markets. In order to fulfill their cash flow needs firms heavily depend on internal funds, short-term bank loans, and trade credit in order to finance their undertakings [ 5 ]. For such firms’ working capital plays the role of additional source of finance. Consistent with this view, KPMG China [ 8 ] declared that effective management of working capital has played a vital role to alleviate the effects of recent financial crisis. Additionally, in recent times the remarkable growth of China roots to Chinese private firms’ effective management of working capital in general and their accounts receivables in particular [ 9 ]. Therefore, efficient management of working capital is an avenue that highly influence firm profitability [ 10 – 12 ], liquidity [ 7 , 13 ], and value. Since corporates cash flow management policies settle working capital by account receivables, inventories and accounts payables. Hence, existing theories of working capital management support the view that by cash flow manipulation firms can enhance liquidity and competitive positioning [ 6 , 14 , 15 ]. Therefore, firms manipulate cash flows through its measures, as by way speedy recovery of accounts receivables, reducing inventories, and delaying accounts payables [ 16 ]. Hence, the first research question is whether changes in cash flow measures are the tools that could bring positive changes in firm financial performance.

From the accounting perspective, liquidity management evaluates firm’s competence to cover obligations with cash flows [ 17 , 18 ], as uncertainty about cash flow increases the risk of collapse in most regions, industries, and other subsamples [ 19 ]. There are two extents: static or dynamic views, through which corporate liquidity can be inspected. The balance sheet data at some given point of time is a basis for static view. This comprises of traditional ratios such as, current ratios and quick ratios, in order to evaluate firms ability to fulfill its obligations through assets liquidation [ 20 ]. The static approach is commonly used to measure corporate liquidity, however, authors also declare that financial ratio’s static nature put off their capability to effectively measure liquidity [ 21 , 22 ]. The dynamic view is to be utilized to capture the firms’ ongoing liquidity from firm operations [ 16 , 21 ]. Therefore as a dynamic measure, the cash conversion cycle (CCC) is used by authors to measure liquidity in empirical studies of corporate performance [ 23 ]. For instance; Zeidan and Shapir [ 24 ] and Amponsah-Kwatiah and Asiamah [ 25 ] find that reducing the CCC by not affecting the sales and operating margin increases share price, profits and free cash flow to equity. Accordingly, Farris and Hutchison [ 20 ] find that shorter cash conversion cycle leads to higher present value of net cash flows generated by asset which contribute to higher firm value. Moreover, Kroes and Manikas [ 1 ] used operating cash cycle as a measure for cash flow metrics, which combines accounts receivables and firm inventory. As explained by Churchill and Mullins [ 26 ] that all other things being constant shorter the operating cash cycle faster the company can reassign its cash and can have growth from its internal resources. The second research question therefore is that whether changes in cash flow metrics bring positive improvements in firm financial performance.

Study uses CSMAR database of Chinese listed companies from the period 2018:q2-2020:q1. In the study, measure of firm performance is Tobin’s-q. Study uses three cash flow measures; accounts receivables turning days, inventory turning days and accounts payable turning days, and cash conversion cycle and operating cash cycle as measure for cash flow metrics. Consistent with the prediction, study finds that changes in cash flow measures and metrics bring positive improvements in firm financial performance. In particular decline in cash flow measures (ARTD, ITD, and APTD) to one unit would increase firm performance approximately 6.8%, 0.03%, and 7.2%; respectively. Additionally, one unit decline in cash conversion cycle would increase firm performance approximately 3.8%. Furthermore, study uses GMM estimator to alleviate the endogeneity and observe that the main estimation results still hold. In addition, study also employs a sensitivity analysis specifications to better isolate the impact of changes in cash flow measures and metrics on firm financial performance in previous period and observe that negative association is still sustained.

The sizable number of listed firms in China enable the study to divide sample into two subsamples: firms in high leverage industry and firms in low leverage industry. The study repeats the test on these two subsamples. Significant and negative association between cash flow measures, metrics and firm financial performance is still sustained. Moreover, the results of differential coefficients across two sub samples via seemingly unrelated regression (SUR) systems indicated that cash flow measures and metrics are more pronounced in low debt industries.

The paper makes significant contribution to the literature related to cash flow management and working capital management. First, this paper is among few to empirically study, how cash flow measures and metrics are related to firm performance from dynamic stand point especially in the Chinese context. The study sheds light on the role of cash flow management in improving the firm’s financial performance. Second, extant researches on cash flow management focus on the manufacturing industries. Unlike others this paper investigates the relation between cash flow measures, metrics and firm performance in the context of whole Chinese market, which is essential to know how these performance levers contribute to financial performance of other industries also. Third, results highlight the role of cash flow management in improving financial performance by taking firms’ leverage into consideration and declare that low leveraged industries are better off in terms of influence of changes in cash flow measures and metrics on firm performance. Fourth, the present paper uses generalized estimating equations (GEEs) Zeger and Liang [ 27 ] technique which is robust to estimate variances of regression coefficients for data samples that display high correlation between repeated measurements. Finally, to ensure robustness of findings the study uses sensitivity analysis, and in order to control for the potential issue of endogeneity the present study also uses generalized method of moments (GMM) following statistical procedures of Arellano and Bover [ 28 ] and Blundell and Bond [ 29 ].

The remainder of the paper is organized as follows. Section two discusses the role of cash flow management in China. Section three discusses the relevant literature, theoretical framework and development of hypotheses. Section four presents the data and variables of the study. Section five reports the methodology, empirical results and discussions. Section six concludes the paper.

Cash flow management in China

The economy of China has undergone a massive economic growth rates followed by high rates of fixed investment in the past three decades [ 5 , 30 ]. This growth miracle is outcome of highly productive firms and their ability to accrue significant cash flows [ 31 ], despite inadequate financial system. Moreover, although Chinese economy has seen fast growth and development in the past two decades but still the legal environment in China cannot be regarded as conducive [ 32 , 33 ]. As, in the credit market of China government plays a decisive role in credit distribution [ 34 , 35 ], and mostly the credit is granted to companies owned by state or closely held firms [ 34 , 36 ]. The Chinese firms have restricted admittance to the long-standing funds marketplace [ 37 ], therefore, companies held private or non-SOE find difficulty to access credit from financial market relatively to state owned firms. Although by the 1998 leading Chinese banks were authorized to lend credit to privately held firms but still these firms face troublesome to get external finance comparatively to state owned firms [ 32 ]. The prior literature also indorses this and states that with the presence of regulatory discrimination amid privately held and state owned firms, the privately held firms to the extent are often the subject of state predation [ 38 , 39 ].

Given country’s poor financial system, firms in China have managed their growth rates from their internal resources. Working capital management from where firms manage cash flows is the source of financing of the growth by Chinese firms. Accordingly, Ding et al . [ 5 ] mentioned that in their sample of Chinese firms about 66.6% dataset were characterized by a large average ratio of working capital to fixed capital, as it is a source and use of short term credit. Additionally, Dewing [ 40 ] termed working capital as one of the vital elements of the firm along with fixed capital. Moreover, Ding et al . [ 5 ] conclude that in the presence of financial constraints and cash flow shocks still Chinese firms can manage high fixed investment levels which correspond more to working capital than fixed capital. They further state that this all roots to the efficient management of working capital that Chinese firms use in order to mitigate liquidity constraints.

Literature review, theoretical background and hypothesis development

Literature review and theoretical background.

Corporate finance theory states that the main goal of a corporation is to maximize shareholder wealth [ 41 ]. Neoclassical capital theory is based on the proposition put forward by Irving Fisher [ 42 ] that individual consumption decisions can be separated from investment decisions. Fisher’s separation theorem holds true in perfect capital markets, where companies and investors can lend and borrow on the same terms without incurring transaction costs. In such a world, the choice to change income streams by lending and borrowing to meet preferences of consumption means that investors rank income streams according to their present value. Therefore, the value of the company is maximized by choosing the set of investments that generate the largest net present value over returns. When the company pays cash dividends with capital reserves, cash dividends can be maintained at a certain level, and when the ratio of capital reserves to cash dividends is high, accrual income management is low [ 43 ]. Since Gitman’s [ 44 ] seminal work, in which he introduced the concept of cash circulation as a means of managing corporate working capital and its impact on firm liquidity. Richards and Laughlin [ 16 ] then transformed the cash cycle concept into the Cash Conversion Cycle (CCC) theory for analyzing the working capital management efficiency of firms. CCC theory holds that effective working capital management (i.e., shorter cash conversion cycles) will increase a company’s liquidity, all else being equal. Signal theory can illustrate how a company can provide excellent signals to users of financial and non-financial statements [ 45 ]. In addition, this theory can also be used as a reference for investors to see how good or bad a company is as an investment fund. This theory explains the relationship between working capital turnover and profitability.

The trade-off theory in capital structure is a balance of benefits and sacrifices that may occur due to the use of debt [ 46 ]. The higher the amount a company spends on financing its debt, the greater the risk that they will face financial hardship due to excessive fixed interest payments to debt holders each year and uncertain net income. Higher cash flow uncertainty leads to an increased risk of business collapse [ 19 ]. Companies with high levels of leverage should keep their liquid assets high, as leverage increases the likelihood of financial distress. This theory is used to explain the relationship between leverage and profitability. Pecking order theory explains that companies with high liquidity levels will use more debt funds than companies with low liquidity levels [ 47 ]. Liquidity measures a company’s ability to meet its cash needs to pay short-term debts and fund day-to-day operations as working capital. The better the company’s current ratio, the more the company will gain the trust of creditors so that creditors will not hesitate to lend the company funds used to increase capital, which will benefit the company.

Prevailing working capital management theories argue that firms can improve their competitive position by manipulating cash flow to improve liquidity [ 14 , 15 , 20 , 48 – 50 ]. In addition, the company’s ability to convert materials into cash from sales reflects the company’s ability to effectively generate returns from investments [ 51 ]. It’s better to combine investment spending with cash flow from ongoing operations than to measure and report both discretely [ 52 ]. Three factors directly affect the company’s access to cash: (i) the company’s inability to obtain cash receivables while waiting for the customer to pay for the delivered goods; (ii) the company is unable to obtain cash receivables; (iii) the company is unable to obtain cash receivables. (ii) Cash invested in goods is tied up and unavailable and the goods are inventoried; and (iii) cash may be made to the company if it chooses to delay payment to suppliers for goods or services provided [ 16 ]. While a company’s cash payments and collections are typically managed by the company’s finance department, the three factors that affect cash flow are primarily manipulated by operational decisions [ 53 ].

In the literature, the prevailing view is that the presence of liquidity is not always good for the company and its performance, because sometimes liquidity can be overinvested. Since emerging markets are characterized by imperfect markets, companies maintain internal resources in the form of liquidity to meet their obligations. As in emerging markets, financial markets are inefficient in allocating resources and releasing financial constraints, resulting in underinvestment by financially constrained companies [ 54 ]. In addition, access to capital markets, external financing costs, and availability of internal financing are financial factors on which a company’s investments rely [ 55 ]. Alternatively, the pecking order theory [ 56 ] argues that due to information asymmetry, companies adopt a hierarchical order of financing preferences, so internal financing takes precedence over external financing. A study by Zimon and Tarighi [ 7 ] argue that businesses must use the right working capital strategy to achieve sustainable growth as it optimizes operating costs and maintains financial liquidity. Moreover, asset acquirements affect a company’s output and performance [ 57 ].

The existing literature provides different evidence of the impact of working capital management on firm performance. A study by Sharma and Kumar [ 58 ] examine the relationship between working capital management and corporate performance in Indian firms. Considering a sample of 263 listed companies during the period 2000–2008, they found that CCC had a positive impact on ROA. Similarly, of the 52 Jordanian listed companies in the period 2000–2008, Abuzayed [ 11 ] found a positive impact of CCC on total operating profit and Tobin’s-Q. Similar findings have been reported by companies in China [ 59 ], the Czech Republic [ 60 ], Ghana [ 25 ], Indonesia [ 6 ], Spain [ 61 ], and Visegrad Group countries [ 62 ]. In contrast, few studies reported an inverse correlation between CCC and firm performance in India [ 63 ], Malaysia [ 2 ], and Vietnam [ 64 ]. A negative correlation indicates that a higher CCC leads to lower company performance. A study by Afrifa et al. [ 65 ] did not find any significant relationship between CCC and firm performance. The findings of the relationship between NWC and company performance are not much different from CCC. Companies in European countries [ 66 ], and the United Kingdom [ 67 ] reported positive correlations, and those in Poland reported negative correlations [ 68 ]. Although previous operations management studies have explored the relationship between working capital and firm performance, the results of these studies remain inconclusive, and the study has found positive, curved, and even insignificant relationships. This is mainly since accidental factors make this relationship both complex and special. Therefore, to enhance the beneficial impact of working capital and cash flow on corporate performance, companies must make appropriate investments to promote more objective, informed, and business-specific working capital and cash flow management choices [ 69 ]. Collectively, these mixed pieces of evidence provide sufficient motivation for this study to develop hypotheses based on positive and negative relationships.

The cash flow measures and firm financial performance

The firms’ trade where merchandise sold on credit instead of calling for instantaneous cash imbursement, such transaction generate accounts receivables [ 70 ]. Accounts receivable directly affect the liquidity of the enterprise, and thus the efficiency of the enterprise [ 71 ]. From the stands of a seller, the investment in accounts receivables is a substantial component in the firm’s balance sheet. Firms’ progressive approach towards significant investment in accounts receivables with respect to choice of policies for credit management contributes significantly to enhance firm value [ 72 ]. Firms can utilize cash received from customers by investing in activities which contribute to enhance sales [ 1 ]. Firms can improve liquidity position with capability to collect overheads from customers for supplied goods and services rendered in a timely manner [ 17 ]. However, credit sales is instrumental to increase sales opportunities for firms but may also increase collection risk which can lead to cash flow stresses even to healthy sales growth companies [ 73 ]. Firms offer sales discounts which may not increase sales but may increase payments by customers and improve firms’ cash flow, reduce uncertainty of future cash flows, reduce risk and required rate of return [ 74 ].

Literature suggests that firm performance increases with shorter period of day’s sales outstanding [ 15 , 20 , 26 ]. Accordingly, Deloof [ 75 ] by working on Belgians firms find negative relationship between number of days accounts receivables and gross operating income. However, models of trade credit (such as; Emery, [ 21 ]) endorse that higher profits also lead to more accounts receivables as firms with higher profits are rich in cash to lend to customers. In a study by García-Teruel and Martinez- Solano [ 76 ] suggest that managers of firms with fewer external financial resources available generally dependent on short term finance and particularly on trade credit that can create value by shortening the days sales outstanding. Furthermore, Gill et al . [ 10 ] declare that firm can create value and increase profitability by reducing the credit period given to customers. Kroes and Manikas [ 1 ] analyzed manufacturing firms and suggested that decline in days of sales outstanding relates to improvements in firm financial performance and persists to several quarters. According to Moran [ 77 ] suppliers happily offer reasonable sales discounts for early payments which improve their cash flow position, locks the receivables, remove the bad debt risk at early stage, and reduce their day’s sales outstanding significantly which ultimately improve their working capital position. Fig 1 depicts this relationship. In consistent with discussion the following hypothesis is proposed:

• H1a : A decrease (increase) in the duration of accounts receivables turning days increases (decreases) firm financial performance.

• PPT PowerPoint slide
• PNG larger image
• TIFF original image

https://doi.org/10.1371/journal.pone.0287135.g001

The research has mixed views whether reduction in inventory is beneficial to firm performance or increase in inventory leads to increased performance. Despite high cash flow, inventory level management has been neglected [ 78 ]. In this regard literature has evidenced three themes of relationships: positive relationship, negative relationship or no relationship, and inclusion of moderators and mediators to the relationship of number of day’s inventory and firm performance [ 79 ]. However, the inventory management revolutionized after the launch of lean system with familiarizing just-in-time inventory philosophy by Japanese companies [ 80 , 81 ]. Afterwards, research related to inventory management evidenced that firms which adopted lean system not only improved customer satisfaction but also attained greater level of asset employment that ultimately leads to higher organizational growth, profitability, and market share [ 82 , 83 ]. Moreover, in a JIT context firms experience positive effects on organizational performance due to reduced inventory, and reduction in inventory significantly improves three performance measures such as: profits, firms return on sales, and return on investments [ 84 ]. Additionally, Fullerton and McWatters [ 85 ] found positive influence of reduced inventory on organizational performance which corresponds to JIT context.

However, generally literature considers that better inventory performance such as: higher inventory turns or decreased level of inventory is normally attributed to better firm financial performance [ 86 ]. Moreover, it is a mutual consent by researchers that high level of inventory also signifies demand and supply misalliance and often related to poor operational performance [ 87 , 88 ]. In a study by Elsayed and Wahba [ 79 ] indicated that there is influence of organizational life cycle on the relationship of inventory and organizational performance. Their results indicated that at initial stage though ratio of inventory to sales negatively affects organizational performance, but it put forth significant and positive coefficient on organizational performance at the revival phase or rapid growth phase. Additionally, literature has documented negative influence of reduced inventory on performance. In a study by Obermaier and Donhauser [ 89 ] evidenced that lowest level of inventory leads to poor organizational performance and suggest that moving towards zero inventory case is not always favorable. Fig 1 depicts this relationship. Accordingly the hypothesis is proposed as follows:

• H1b : A decrease (increase) in the duration of inventory turning days increases (decreases) firm financial performance.

According to Deloof [ 75 ] payment delays to suppliers are beneficial to assess the quality of product bought, and can serve as a low-cost and flexible basis of financing for the firm. On the contrary, delaying payments to suppliers may also prove to be costly affair if firm misses the discount for early payments offered [ 90 ], hence firms by reducing days payable outstanding (DPO) likely to enhance firm financial performance [ 76 ]. In line with this, Soenen [ 22 ] states that firms try to collect cash inflows as quickly as possible and delay outflows to possible length. Payment delays enable firms to hold cash for longer duration which ultimately increases firms’ liquidity [ 50 ]. As discussed by Farris and Hutchsion [ 20 ] that firms can improve cash to cash cycle by extending the average accounts payable along with inventory and get interest free financing. A study by Sandoval et al . [ 91 ] speculate that investors are more sensitive to accruals of long-term operating assets than to accruals of long-term operating liabilities because the former is more associated with recurring profits than the latter. Moreover, Fawcett et al . [ 92 ] indorsed that by extending the duration of accounts payable cycle companies can improve their cash to cash cycle. However, longer payment cycles not only harm relationship with suppliers, but may also lead to lower level of services from suppliers [ 93 ].

As discussed by Raghavan and Mishra [ 94 ] firms may be reluctant to produce or order at optimal point followed by cash restraints for fast growing firms where money plays the role of catalyst when demand is significantly high but firms are financially restricted to order less and this situation may mark the harmful effects over the performance of whole supply chain at least on temporary basis until restored. Hence, this situation is favoring that firms encourage and motivate their customers for quicker payments in order to increase cash to cash cycles [ 92 ]. Fig 1 depicts this relationship. Accordingly based on discussion hypothesis is proposed as follows:

• H1c : A decrease (increase) in the duration of accounts payable turning days’ increases (decreases) firm financial performance.

The cash flow metrics and firm financial performance

As shown by Richards and Laughlin [ 16 ] that firms should collect inflows as quickly as possible and postpone cash outflows as long as possible which is a general view based on the concepts of operating cash cycle (OCC) and cash conversion cycle (CCC). This shows that firms by reducing CCC cycle can make internal operation more efficient that ensures the availability of net cash flows, which in turn depicts a more liquid situation of the firm, or vice versa [ 25 ]. They further said that cash conversion cycle (CCC) is based on accrual accounting and linked to firm valuation. Baños-Caballero et al . [ 95 ] suggested that however, higher level of CCC increases firm sales and ultimately profitability, but may have opportunity cost because firms must forgo other potential investments in order to maintain that level. On the contrary, longer duration of CCC may hinder firms to be profitable because this is how firms’ duration of average accounts receivables and inventory turnover increase which may lead firms towards decline in profitability [ 96 ]. Therefore, cash conversion cycle (CCC) can be reduced by shortening accounts receivables period and inventory turnover with prolonged supplier credit terms which ultimately enable firms to experience higher profitability [ 97 , 98 ]. A shorter duration of CCC helps managers to reduce some unproductive assets’ holdings such as; marketable securities and cash [ 23 ]. Because with low level of CCC firms can conserve the debt capacity of firm which enable to borrow less short term assets in order to fulfill liquidity. Therefore, shorter CCC is beneficial for firms that not only corresponds to higher present value of net cash flows from firm assets but also corresponds to better firm performance [ 60 , 62 ].

Operating cash cycle is a time duration where firm’s cash is engaged in working capital prior cash recovery when customers make payments for sold goods and services rendered [ 16 , 26 ]. Literature endorses that shorter the operating cash cycle better the firm liquidity and financial performance because companies can quickly reassign cash and cultivate from internal sources [ 16 ]. In a study by Kroes and Manikas [ 1 ] find that there is significant negative relationship between changes in OCC with changes in firm financial performance. They further suggested that OCC can be taken by managers as a metric to monitor firm performance and can be used as lever to manipulate in order to improve firm performance. A study by Farshadfar and Monem [ 99 ] also found that when the company’s operating cash cycle is shorter and the company is small, the cash flow component improves earnings forecasting power better than the accrual component. Moreover, Nobanee and Al Hajjar [ 100 ] recommend the optimum operating cycle as a more accurate and complete working capital management measure to maximize the company’s sales, profitability, and market value. Fig 1 depicts this relationship. Hence, based on above discussion the proposed hypotheses are:

• H2a : A decrease (increase) in cash conversion cycle increases (decreases) firm financial performance.
• H2b : A decrease (increase) in operating cash cycle increases (decreases) firm financial performance.

Data and variables

Samples selection.

The data used in this study is taken from China Stock Market and Accounting Research (CSMAR) database. The study includes quarterly panel data of non-financial firms with A-shares listed on Shanghai Stock Exchange (SHSE) and Shenzhen Stock Exchange (SZSE). The data comprises on eight quarters ranging from 2018:q2-2020:q1, and four lag effects are included that make data up to twelve quarters. The use of quarterly data ensures greater granularity in the findings of the study as prior studies have mainly used annual data, therefore, this study uses two years plus one year of lagged data which offers exclusively a robust sample period that is instrumental to effective inference [ 1 ]. The main benefit of this method of examining quarterly changes within a company is that the company cannot have any missing data items throughout the sample period. Because any missing data will lead to design errors and imbalance panel data. Therefore, this problem led to now selection of a 12-quarter observation frame (two years plus one year of lagging data) because it delivers a reliable sample period from which effective conclusions can be prepared. Moreover, the data is further refined and maintained from unobserved factors, unbalanced panels, and calculation biases. Moreover, deleted firm-year observation with missing values; excluded all financial firms; as their operating, investing, and financing activities are different from non-final firms [ 75 , 101 ], eliminated firms with traded period less than one year, and excluded all firms with less than zero equity. The data is further winsorized up to one percent tail in order to mitigate potential influence of outliers [ 76 ]. Additionally, the firms’ data with negative values for instance; sales and fixed assets is also removed [ 67 , 101 ]. The final sample left with balanced panel of 20288 firm year observations consists of 2536 groups. The change (Δ) in all dependent and independent variables of the study sample represents variable period t measured as difference between value at the end of current quarter and value of the variable at the end of prior quarter divided by value of the variable at the end of prior quarter.

Dependent variable

The firm’s financial performance is dependent variable in the study and is measured through Tobin’s-q. Tobin’s-q is the ratio of firm’s market value to its assets replacement value and it is widely used indictor for firm performance [ 1 , 102 – 105 ]. Tobin’s-q diminishes most of the shortcomings inherent in accounting profitability ratios as accounting practices influence accounting profit ratios and valuation of capital market applicably integrates firm risk and diminishes any distortion presented by tax laws and accounting settlements [ 106 ]. Moreover, this variable has preference over other accounting measures (such as; ROA) as an indicator of relative firm performance [ 107 ].

Independent variables

Based on established literature [ 1 , 5 , 12 , 75 , 76 ] this study has used three cash flow measures and two composite metrics as independent variables. Each one of them is discussed below.

Accounts receivables turning days (ARTD).

The increasing days of sales outstanding specifies that firm is not handling its working capital efficiently, because it takes longer duration to collect its payments, which signifies that firm may be short of cash to finance its short term obligations due to the longer duration of cash cycle [ 5 ].

Inventory turning days (ITD).

A higher ratio of inventory turnover is a good sign for firm as it signifies that firm is not having too many products in idle condition on shelves [ 5 ].

Accounts payable turning days (APTD).

A firm with higher days of payable outstanding ratio shows that it takes longer duration to make payments to suppliers which is a sign of poor efficiency of working capital, however longer duration of DPO also signifies that company has good terms with suppliers which is also beneficial [ 5 ].

Cash conversion cycle (CCC).

It is generally considered that lower the CCC cycle better the firm efficiency and able to accomplish its working capital [ 5 ]. Additionally, longer duration of CCC shows more time duration between cash outlay and recovery of cash [ 76 ].

Operating cash cycle does not take into account the payables, and hence comprises of days where cash is detained as inventory prior receipts of payments from customer [ 1 ]. Besides, generally it is considered that firm having shorter OCC is with better liquidity and performance [ 26 ].

Control variables

This study uses firm size and return on assets as control variables. Following Deloof [ 75 ] the study uses firm size by taking natural logarithm of quarterly sales. The firm size has significant impact on market value of firms [ 103 , 108 ]. Study uses quarterly sales instead of total assets as measure for firm size to avoid the potential multicollinearity problem because total asset is denominator for the dependent variable [ 1 ]. Following Baños-Caballero et al . [ 95 ] study controls for return on asset (ROA) which is accounting measure of firms. Return on assets (ROA) is a ratio of earnings before interest and taxes (EBIT) divided by total assets [ 109 ].

Descriptive statistics

Table 1 shows the descriptive statistics of variables of the study. The mean and median value of ARTD is 92.89 and 73.14, respectively. On average, the firms in our sample have relatively higher median value of days of sales outstanding than evidence of Ding et al . [ 5 ], which shows that Chinese firms take longer to collect their payments from customers. The mean and median value of APTD is 105 and 82.25, respectively. The mean and median value of ITD is 166.18 and 107.13, respectively. On average it shows relatively high inventory turnover in our sample firms which signifies that Chinese firms are quite efficient in inventory management and products are not sitting idle in shelves. The mean and median value of CCC is 150.62 and 115.30, respectively. On average the CCC of Chinese firms is relatively high. However, in a study by Hill et al . [ 101 ] indicated that higher CCC also signifies higher firm profitability. The mean and median value of OCC is 250.71 and 206.44, respectively. The firm performance (Tobins-q) has a mean and median value of 2.86 and 2.27. The ROA shows mean and median value of 2.46 and 1.67, respectively. On average the size of Chinese firms is 20.79 with median value of 20.71.

https://doi.org/10.1371/journal.pone.0287135.t001

The Table 2 reports results for correlation matrix. The correlation coefficient between Tobin’s-Q and CCC is significant and negative at 1 percent level which is consistent to the findings of Afrifa [ 67 ]. The correlation between all the measures of cash flows and ROA is significant and negative at 1 percent, consistent with the results of Deloof [ 75 ]. Moreover the correlation between ROA and CCC is also significant and negative at 1 percent, similar evidences find by García-Teruel and Martinez-Solano [ 76 ] for the sample of Spanish firms. Furthermore, the correlation coefficients among all the variables are significantly lower than 0.80 indicating no sign of multicollinearity [ 110 ]. The formal test of variance inflation factor (VIF) for all the independent variables of study were examined to check if there is presence of multicollinearity. The variance inflation factor (VIF) also indicated no multicollinearity among analysis variables with all values below the threshold level of 10 proposed by Field [ 110 ], which shows that multicollinearity may not be the case and data is suitable for further analysis.

https://doi.org/10.1371/journal.pone.0287135.t002

Methodology, empirical analysis and discussion

Effect of cash flow measures on firm financial performance.

Where ΔY it represents Tobin’s-q for industry i and time t. The ΔX 1it is accounts receivable turning days (ΔARTD), and ΔX 1it-1 to ΔX 1it-4 are lags for ΔARTD. The ΔX 2it is inventory turning days (ΔITD), and ΔX 2it-1 to ΔX 2it-4 are lags for ΔITD. The ΔX 3it is accounts payable turning days (ΔAPTD), and ΔX 3it-1 to ΔX 3it-4 are lags for ΔAPTD. The CONTROLS it represent control variables; Size and ROA. The U it is probabilistic term. Study included four lag effects in Eq 6 for cash flow measures to examine how long the impact of changes in cash flow measures on changes in firm performance persists.

Table 3 provides detailed results of GEEs model’s parameters estimation analysis. The dependent variable is firm performance (Tobin’s-q) in all the models columns 2 through 4. H1a , H1b , and H1c posits that changes in measures of cash flow (ΔARTD, ΔITD, and ΔAPTD) changes firm financial performance. The coefficient of accounts receivable turning days (ΔARTD) in model 1 is -0.0068297, which is statistically significant at 0.1% confidence level in the current quarter. It is consistent with the study’s argument that decline in firms’ days of accounts receivables increases firm financial performance. Similar evidences were found by Shin and Soenen [ 13 ], Wilner [ 114 ], Deloof [ 75 ], and Kroes and Manikas [ 1 ]. According to Deloof [ 75 ] the negative relationship between days sales outstanding and firm performance suggests that managers can create value for their shareholders by reducing number of day’s accounts receivables to a reasonable minimum.

https://doi.org/10.1371/journal.pone.0287135.t003

The coefficient of inventory turning days (ΔITD) in model 1 is -0.0003014, which is statistically significant at 0.1% confidence level in the current quarter. These results are consistent with the argument given in hypothesis H1b . Significant number of studies conclude that low inventory period increases liquidity and firm performance [ 75 , 86 , 115 , 116 ]. Moreover, this finding is consistent with literature as firms sound inventory position exhibits better operational and financial performance [ 117 , 118 ].

The coefficient of accounts payable turning days (ΔAPTD) in model 1 is -0.0717425, which is statistically significant at 0.1% confidence level in the current quarter. These results are consistent with present study’s argument that decline in accounts payable turning days brings positive improvements in firm performance. The findings of results for APTD present strong evidence that when companies reduce their APTD by taking advantage of early discounts payment from suppliers, firms may have a persistent duration of perpetual firm financial performance improvement. As suggested by Moran [ 77 ] that firms may be more beneficial by taking advantage of early payment discounts than prolonging the cycle because of reduction in purchase price of components and materials by them.

Next, study estimated Eq 6 by dividing the sample into two subsamples based on firm leverage level, which is measured by firms’ debt to assets ratio. The high leverage (low leverage) contains firms in industries where their debt to assets ratio is greater (smaller) than the median value. Model 2 and 3 obtain similar patterns when applied on Eq (6) for high and low leveraged firms. The findings of results for high leverage and low leverage firms still hold as of full sample firms and strongly support hypotheses H1a , H1b , and H1c . Conclusively, the findings of results imply that reduction in three cash flow measures (ARTD, ITD, and APTD) relate to significant positive improvements in financial performance of firms at current quarter.

Effect of cash flow metrics on firm financial performance

Where ΔY it represents Tobin’s-q for industry i and time t. The ΔX it is ΔCCC and from ΔX 1it-1 to ΔX 1it-4 are lags for ΔCCC. The ΔX 2it is OCC and from ΔX 2it-1 to ΔX 2it-4 are lags for ΔOCC. The CONTROLS it shows the control variables; Size and ROA. The U it is probabilistic term. Study includes four lag effects in Eq 7 for cash flow metrics to examine how long the impact of changes in CCC and OCC on changes in firm performance persists.

Table 4 represents results for cash flow metrics (CCC and OCC). H2a and H2b predict that changes in ΔCCC and ΔOCC bring positive changes in the firm financial performance. The coefficient for the cash conversion cycle (ΔCCC) is -0.0382176, which is statistically significant at a 5% confidence level in the current quarter (as shown in Table 4 column 2).

https://doi.org/10.1371/journal.pone.0287135.t004

Next, the study estimated Eq 7 by dividing the sample into two subsamples based on firm leverage level which is measured by firms’ debt to assets ratio. The results in Table 4 Column 3 posit findings for highly leveraged firms. The coefficient for ΔCCC is -0.4038345, which is statistically significant at a 1% confidence level in the current quarter, as shown in Table 4 Column 3. The coefficient for ΔOCC is -0.0572725, which is statistically significant at a 1% confidence level in the current quarter, as shown in Table 4 Column 3. The coefficient for ΔCCC is -0.027272, which is statistically significant at a 0.1% confidence level, as shown in Table 4 column 4 for low-leverage firms at the current quarter.

As predicted by the hypothesis H2a ; the findings of results also show significant negative association of CCC with firm financial performance at current quarter for full sample firms, high leveraged firms, and low leveraged firms. These evidences of results are consistent with existing literature and show that decline in cash conversion cycle brings positive improvements in firm financial performance [ 13 , 23 , 75 , 76 , 96 , 97 , 119 ]. A study by Zeidan and Shapir [ 24 ] finds that reducing the CCC by not affecting the sales and operating margin increases the prices of shares, profits, and free cash flow to equity. Moreover, Prior research view that careful handling of the cash conversion cycle leads firms to significantly higher returns [ 13 , 23 , 75 , 76 , 97 ]. This outcome is consistent with the research by Simon et al. [ 120 ], Soukhakian and Khodakarami [ 121 ], Basyith et al. [ 6 ], Yousaf et al. [ 60 ], and Bashir and Regupathi [ 2 ]. The findings of the results show a significant negative association of OCC with firm financial performance in the current quarter for highly leveraged firms. The findings suggest that change in OCC led to changes in corporate performance provides significant support to the use of OCC as an indicator for managers to monitor performance and as a lever to manipulate to improve the corporate financial performance. The findings show that OCC in the current quarter posits a significant negative relationship with firm financial performance for highly leveraged firms. This evidence is consistent with the empirical findings of Churchill and Mullins [ 26 ].

Difference of coefficients across high leverage and low leverage firms

In addition, in the next section the present study analyzed the difference of coefficients across two groups by dividing sample into two subsamples, high leveraged and low leveraged firms based on their total debt to total assets ratios. In order to check the difference of coefficients across two groups study applied seemingly unrelated regression (SUR) system on Eqs ( 6 ) and ( 7 ) to better isolate the effect of cash flow measures and metrics on firm financial performance. The study computed standard errors for differenced coefficients via the seemingly unrelated regression (SUR) system that combines two groups.

The Table 5 reports results for differential impact of cash flow measures and metrics on firm performance across high leverage and low leverage industries. The study finds that the estimated coefficients for differences are positive and statistically significant. These findings of results imply that low leveraged industries are better off in terms of changes in cash flow measures and metrics that bring more positive changes in low debt industries financial performance. Since, low cash conversion cycle (CCC) conserves the debt capacity of the firm as in this situation firms need less short term borrowing to provide liquidity [ 97 ]. Therefore, lower cash conversion cycle (CCC) lessens the requirement for lines of credit and contributes to the firms’ debt capacity [ 23 ]. Due to high financial distress and higher likelihood of bankruptcy high leverage firms are more bounded by financial constraints which may hinder them to take valuable investments and, thus, harm their profitability [ 122 ]. This also suggests that firms with low leverage are high value firms and maintain lower duration of cash conversion cycle (CCC) at low levels that counts to higher profitability which ultimately leads to higher retained earnings and reduce the need for debt.

https://doi.org/10.1371/journal.pone.0287135.t005

Test of endogeneity effect and sensitivity analysis

Where ΔY it represents firm performance, ΔY it-1 is first lag of dependent variable firm performance. All the independent variables (cash flow measures and metrics) are denoted with ΔX it . CONTROLS it represents control variables and λ t shows time fixed effects, Ƞ i represents industry fixed effects, and ɛ it represents unobserved heterogeneity factors.

Table 6 represents estimated results obtained using Eq (8) . The findings of study observes significant negative association between cash flow measures, metrics and firm financial performance in the full sample, high leverage and low leverage subsamples, indicating that firms’ changes in cash flow measures and metrics bring significant positive improvements in financial performance. Overall, the results still hold after study considers the endogeneity problem, supporting the hypotheses of the study.

https://doi.org/10.1371/journal.pone.0287135.t006

Where ΔY it represents firm performance. All the independent variables (cash flow measures and metrics) are denoted with ΔX it-1 , and CONTROLS it represents control variables. D t shows time fixed effect, D i represents industry fixed effects, and ɛ it represents unobserved heterogeneity factors.

Table 7 represents estimated results of sensitivity analysis regression. The study finds that estimated coefficients of cash flow measures (ΔARTD t-1 , ΔITD t-1 , ΔAPTD t-1 ) and cash flow metrics (ΔCCC t-1 , ΔOCC t-1 ) are negative and significant, indicating that changes in previous period’s cash flow measures (ΔARTD t-1 , ΔITD t-1 , ΔAPTD t-1 ) and cash flow metrics (ΔCCC t-1 , ΔOCC t-1 ) bring significant positive changes in firm financial performance. The study finds similar results to the previously reported findings for alternative subsamples of high leverage and low leverage firms. Overall, the sensitivity analysis results still hold in consistent with the primary analysis results and ensure robustness of main analysis results of the study.

https://doi.org/10.1371/journal.pone.0287135.t007

Practical, managerial, and regulatory implications

This study provides significant practical, managerial, and regulatory implications for cash flow management and working capital management decisions in the corporate sector to improve performance. Most studies on cash flow management have focused on its relationship to profitability from the perspective of manufacturing companies. This research focuses on cash flow management by linking the leverage of non-financial firms in the Chinese context, a fundamental issue of corporate cash flow management and working capital investment that has not been studied much in the emerging markets scenario. Practically study suggests that a decline in cash flow measures and metrics positively enhances a company’s financial performance. Moreover, the paper determines that low-leverage industries perform healthier to cash flow measures and metrics changes. The study also reveals that companies in low-debt industries experience more positive improvements in their financial performance relative to high-debt industry companies. Therefore, the findings of this paper suggest that highly leveraged companies may be less conducive to improving corporate performance in industries where competitors’ leverage is relatively low.

Thus, from managers’ and policymakers’ points of view, the analysis found that changes in cash flow measures (ARTD, ITD, and APTD) and metrics (CCC and OCC) have led to significant positive improvements in the company’s financial performance. These positive changes in the CCC mean that changes in the accounts payable cycle appear to mitigate the combined impact of changes in the accounts receivable and inventory cycles. For managers, this finding suggests that reducing CCC simply by lowering APTD can translate into improvements in company performance. These findings provide rich insights and practical implications for managers and policymakers to use CCC as an operational tool to improve company performance. Therefore, managers and policymakers must actively evaluate the company’s policies regarding cash flow management, working capital management, corporate leverage, and capital budgeting policy before capitalizing on these companies.

Conclusion, limitations, and future implications

Cash flow management is the central issue of company operational strategies that affect a firm’s operational decisions and financial position. Firms’ effective policy of cash flow management is achievable through efficient management of working capital, which is possible through shorter days of accounts receivables, giving discounts on prompt payments, offering cash incentives, reducing inventory turning days through sound inventory management policies, shortening days of accounts payable by achieving rebate on early outlays. Likewise, inventory turnover may lead to a significant positive relationship with organizational performance symbolized by return on assets, cash flow margins, and return on sales in the JIT context. Moreover, high-performance firms may have a lengthier duration of days of accounts payables, which ensures the presence of liquidity. Many firms invest a large portion of their cash in working capital, which suggests that efficient working capital management significantly impacts corporate profitability.

This paper offers a strong insight and findings on cash flow management and firm financial performance by examining the Chinese full sample firms, high debt, and low debt firms to investigate the impact of changes in cash flow measures and metrics on firm performance. Using the exclusive cash flow measures and metrics data, study finds that decline in cash flow measures and metrics bring significant positive changes in firm financial performance. Moreover, study finds that low leveraged industries are better off in terms of changes in cash flow measures and metrics that bring more positive improvements in low debt industries firms’ financial performance relatively to high debt industries firms. This paper also demonstrates that, following firms’ leverage, high-leveraged firms may be less advantageous to enhance firm performance in industries where rivals are relatively low-leveraged.

The results of the study are consistent with the argument that changes in cash flow measure (ARTD, ITD and APTD) and metrics (CCC and OCC) bring significant positive improvements in firm financial performance. These findings furnish a great amount of insight and practical implication for manager to utilize CCC as operating tool in order to enhance firm performance. Firms by actively monitoring and controlling levers such as; ARTD, ITD, APTD, CCC, OCC can enhance financial performance. The findings of results are robust to different measures and metrics of cash flow and firm financial performance, following sensitivity analysis and endogeneity test still main results hold and ensures the robustness of primary analysis.

Study limitations and directions for future research

This research is of great significance to the studies on the relationship between cash flow management and enterprise performance in the Chinese market environment. However, the study did not consider some aspects that need consideration in future studies. This study uses Tobin Q to measure a company’s performance. However, it is also possible to include other company performance indicators that are important in the strategic impact of studies and may provide significant insights. The lack of data availability is a major constraint due to companies’ exits and entry into the sample period. This paper uses secondary data; however, studies can also use primary data to understand and gain appropriate knowledge of corporate cash flow management by combining archived and survey data to improve the robustness and significance of research findings in the context of emerging markets. This study focuses on the financial performance of firms. However, future studies can also use non-financial performance as a consequence variable.

Future extensions of this work may examine whether a company’s cash flow management policies in other areas of the supply chain have a similar relationship to company performance.

In addition, further inquiries that explore the directional association amid inventory and performance changes may extend the understanding of the cash flow management role in a company’s success. In addition, there is a need to explore more the impact of cash flow and working capital investment on firm performance by taking the market imperfections within the framework of emerging economies. Finally, the evidence of this research from the fastest emergent economy of the world may also use other transition economies to generalize for a widespread population group. Finally, studies in the future can consider linking product market competition with the cash flow measures, metrics, and firm performance relationship.

Supporting information

S1 appendix..

https://doi.org/10.1371/journal.pone.0287135.s001

Acknowledgments

The authors wish to thank anonymous referees for all value comments. The authors are responsible for any remaining errors.

• View Article
• Google Scholar
• 8. China, K. P. M. G. China’s 12th five-year plan: Overview. China : KPMG Advisory . 2011.
• 9. Hale G., Long C. What are the sources of financing of the Chinese firms? In Cheung Y.-W., Kakkas V., Ma G. (eds.) The Evolving Role of Asia in Global Finance . Emerald Group Publishing Limited. Bingley, UK, 2011; 313–337.
• PubMed/NCBI
• 40. Dewing A.S. The financial policy of corporations, fourth ed. The Ronald Press Company, New York. 1941.
• 41. Arnold G. Financial Times Handbook of Corporate Finance : A Business Companion to Financial Markets , Decisions and Techniques . Pearson UK. 2013.
• 42. Fisher I. Theory of interest: As determined by impatience to spend income and opportunity to invest it. Augustusm Kelly Publishers. 1930.
• 55. Laghari, F., Chengang, Y., Chenyun, Y., Liu, Y., & Xiang, L. Corporate Liquidity Management in Emerging Economies under the Financial Constraints: Evidence from China. Discrete Dynamics in Nature and Society , 2022.
• 82. Womack J.P. and Jones D.T. Lean thinking: banish waste and create wealth in your Corporation. Simon & Schuster, New York, NY. 2003.
• 87. Radjou N., Orlov L. M., & Nakashima T. Adapting to supply network change. Forrester Research Inc, Cambridge, Massachusetts. 2002.
• 88. Singhal, V. R. Excess inventory and long-term stock price performance. College of Management , Georgia Institute of Technology . 2005.
• 110. Field A. Discovering statistics using SPSS, (Second ed.). Sage Publications Ltd, London. 2005.

• Performance Analysis

Financial Performance Analysis (MBA project)

• January 2019

• Jimma University

Abstract and Figures

Discover the world's research

• 25+ million members
• 160+ million publication pages
• 2.3+ billion citations

• Brian Thulane Ngiba

• Ezra Francis Munyambonera

• G Sri Harsha

• Neil Rajesh Dhruva
• Hennie Van Greuning
• Sofija-Sonja Brajovic Bratanovic
• Husni Ali Khrawish
• Recruit researchers
• Join for free
• Login Email Tip: Most researchers use their institutional email address as their ResearchGate login Password Forgot password? Keep me logged in Log in or Continue with Google Welcome back! Please log in. Email · Hint Tip: Most researchers use their institutional email address as their ResearchGate login Password Forgot password? Keep me logged in Log in or Continue with Google No account? Sign up

Thank you for visiting nature.com. You are using a browser version with limited support for CSS. To obtain the best experience, we recommend you use a more up to date browser (or turn off compatibility mode in Internet Explorer). In the meantime, to ensure continued support, we are displaying the site without styles and JavaScript.

• View all journals
• Explore content
• About the journal
• Publish with us
• Sign up for alerts
• Open access
• Published: 20 September 2024

Navigating crisis: marketing dynamics and resilience in the MENA’s dual-banking system amidst the SAR-COV-2 pandemic

• Miroslav Mateev 1 ,
• Tarek Nasr 1 &
• Kiran Nair 2  

Humanities and Social Sciences Communications volume  11 , Article number:  1248 ( 2024 ) Cite this article

Metrics details

• Business and management

In this paper, we investigate how market concentration and efficiency impact banks’ performance and stability during the SAR-COV-2 pandemic. There is a research gap in the empirical literature in understanding the specific impact of market concentration and efficiency on the profitability and risk-taking behavior of banks, particularly in the developing context of the Middle East and North Africa (MENA) region. To address this gap, we examine the relationship between market concentration, efficiency, and bank performance using a comprehensive dataset encompassing 575 banks across 20 MENA countries from 2006 to 2021. Specifically, we examine the market dynamics and performance of different banking systems co-existing in the MENA region. Our findings indicate that prior to the pandemic, both conventional and Islamic banks benefited from enhanced financial stability as a result of the increased market concentration and efficiency. However, during the pandemic, the positive effects of efficiency and concentration were primarily observed within the group of Islamic banks. Furthermore, we provide new evidence for the moderating effect of market concentration, with a significant negative impact suggesting that increased market competition reinforces the efficiency effect during the pandemic. Our findings are important for policymakers and regulatory authorities in the MENA region as they indicate the need for new policies that assign a more significant role to Islamic banking in the post-SAR-COV-2 recovery.

Similar content being viewed by others

China’s shadow banking in 2020–2022: an empirical study

The monetary policy pass-through mechanism: Is the search-for-yield incentive at work?

The complex relationship between credit and liquidity risks: a linear and non-linear analysis for the banking sector, introduction.

This paper aims to augment the current body of literature on the financial performance and stability of banking systems in times of crisis. Our primary focus is on Islamic and conventional banking systems co-existing in the Middle Eastern and North African (MENA) region. Prior research (Xie et al. 2021 ; Miklaszewska et al. 2021 ; Rizwan et al. 2022 ) states that the current global (SAR-COV-2) crisis has had a direct impact on the real economy and led to several vulnerabilities and increased systemic risk in the banking sector, including the loss of credit due to non-performing loans, which posed a threat to banks’ corporate loan portfolios. Additionally, the pandemic negatively affected “institutions and individuals who may have a hard time liquidating their assets, these assets include limited access to credit” (Deloitte Insights, 2020 , p. 2). As a result, the likelihood of default for financial institutions, including banks worldwide, has greatly increased. Therefore, studying the stability of the banking sector in the context of the current global (SAR-COV-2) crisis is of great importance to both scholars and policymakers.

Recent empirical literature offers some initial evidence supporting the significant impact of the SAR-COV-2 pandemic on the stability of banking systems across various countries and regions. Specific attention has been given to the stability and performance of financial institutions in a “dual-banking system” (i.e., Islamic and conventional). In this context, numerous studies have addressed the question of whether Islamic banking institutions are more resilient to the SAR-COV-2 pandemic compared to their conventional peers (see, e.g., Grassa et al. 2022 ; Fakhri and Darmawan, 2021 ; El-Chaarani et al. 2022 , Rizwan et al. 2022 ). However, the results were mixed. For instance, Abdulla and Ebrahim ( 2022 ) reported “that GCC [Gulf Cooperative Council] banks were negatively affected by the pandemic. However, Islamic banks have performed better than conventional banks” (p. 239). According to the authors, this can be accredited to the Shariah principles that Islamic banking follows, which helped alleviate the pandemic’s adverse effects. In contrast, Grassa et al. ( 2022 ) concluded that “Islamic banks are not as profitable and resilient in the COVID-19 pandemic as in the global financial crisis (2007–2008)” (p. 251). Furthermore, according to the same research, Islamic banking institutions in the GCC countries have accumulated experience and demonstrated increased efficiency and stability over time. In a similar study, El-Chaarani et al. ( 2022 ) analyzed and compared the financial performance of Islamic banks (IBs) and conventional banks (CBs) in the GCC countries before and during the pandemic. The results of this study “reveal that there is a significant difference between Islamic banks and conventional banks during the crisis of COVID-19, where the conventional banks have presented a higher level of financial performance and financial liquidity than their Islamic counterparts” (El-Chaarani et al. 2022 , p. 1). Hence, the evidence regarding the superior performance of IBs during the SAR-COV-2 pandemic remains inconclusive.

To fill this gap, our study investigates and compares the factors that determine the financial stability and performance of “different banking systems” in the MENA region. Particularly, we assess the impact of concentration and efficiency on bank performance before and during the pandemic. Since the analysis of the economic relationship between efficiency and profitability has received limited attention in the research literature, our study places special emphasis on examining efficiency as a determinant of bank profitability, rather than the other way around, highlighting its relevance in the context of banking system performance in the MENA region.

The theoretical framework that may explain the direction of the relation between “efficiency and profitability” is the so-called efficient-structure (ES) hypothesis (Demsetz, 1973 ). The ES hypothesis “entails the notion that the structure of the market may reflect differences in efficiency rather than a competitive situation” (Leon, 2015 , p. 12). The hypothesis “also predicts that in concentrated market structure, the more dominant banks get the higher profitability with the increase of the efficiency” (Cristian et al. 2020 , p. 408). In other words, as market concentration increases, the efficiency of the market also increases. Consequently, it is anticipated that more efficient banks will also be more profitable when operating in concentrated markets. Our expectations of a strong relationship between efficiency and profitability are supported not only by established economic principles but also by numerous relevant studies in this area. For instance, much of the empirical literature indicates that efficiency enables banks to enhance profitability, maintain financial stability, and mitigate the adverse effects of financial crises. Some of these studies utilize data from the US banking market (Assaf et al. 2019 ), China (Tan et al. 2017 ), and India (Rakshit and Bardhan, 2022 ), while others concentrate on developing regions with prevailing Islamic banking (Cristian et al. 2020 ; Mateev et al. 2022b ; Mirzaei et al. 2024 ). Their findings confirm the positive relationship between efficiency and profitability. Conversely, several studies suggest that more efficient banks may be less profitable than their less efficient counterparts (see e.g., Kozak, 2021 ). Since the findings are ambiguous, more research on the efficiency-profitability paradigm is needed.

Another strand of empirical literature has investigated this relationship from a different perspective, such as employing profitability measures to predict efficiency. For example, a study by Otero et al. ( 2020 ) on the determinants of bank cost efficiency in the MENA region concluded that “cost efficiency is positively related to bank performance, but the level of concentration and market share has a negative influence on the former” (p. 1). Similar results were reported for developing economies in the “Southern, Eastern and Central Europe (SECE)” region (Kozak and Wierzbowska, 2021 ). However, our study takes a different approach by examining efficiency as a predictor of profitability, thus emphasizing its relevance in the context of a dual-banking system. The changes in banking operations, particularly in Islamic banking with respect to Shariah compliance, diversification, and business models, have made efficiency and competitive capability crucial factors in assessing bank performance, especially in the MENA region.

Since Islamic and conventional banks follow different business models and approaches to managing risk, the impact of the SAR-COV-2 pandemic is expected to be different. If this is the case, what could be the potential factors that may underpin the superior performance of either type of bank? Our analysis indicates that no prior empirical studies have examined the role of market concentration and efficiency in determining the financial performance and stability of banking systems in the MENA region. To fill this gap, this study explores the performance of banks in countries with a “dual-banking system”. More specifically, we identify and compare the impact of concentration and efficiency on bank stability and performance before and during the SAR-COV-2 pandemic. Our sample consists of 575 banks (both Islamic and conventional) located in 20 MENA countries, where the Islamic banking sector significantly commits to the economic advancement of these nations. The comparative analysis of the two banking systems reveals that, before the pandemic, both types of banks had benefited from enhanced financial stability as a result of increased market concentration and efficiency. However, during the pandemic, the positive effects of efficiency and concentration were only observed within the group of IBs.

Our research differentiates from previous studies conducted in this field in the following ways. First , prior research has primarily concentrated on the impact of SAR-COV-2 on the banking industry’s performance in specific countries and/or regions (Barua and Barua, 2021 ; Feyen et al. 2021 ; Colak and Öztekin, 2021 ; Miklaszewska et al. 2021 ; Rizwan et al. 2022 ). In contrast, our research’s main focus is on the banking systems co-existing in developing regions such as MENA and their comparative performance. Specifically, we explore the main factors such as concentration and efficiency, that influence bank performance and stability before and during the pandemic. Second , when assessing the stability of the banking industry, most studies tend to concentrate on the impact of either market structure or efficiency. Moreover, only individual analyses have been conducted on this matter (Rashid and Jabeen, 2016 ; Cristian et al. 2020 ; Mirzaei et al. 2024 ). In contrast, we analyze the combined effect of market concentration and efficiency on bank stability during the SAR-COV-2 pandemic considering it as an exogenous shock that significantly increased the risk of bank failure. Finally , the predominant method utilized in previous studies to assess bank performance typically involves accounting measures such as “return on assets, return on equity, and net interest margins” (Sun et al. 2017 , p. 195). In addition to these ratios, we employ “aggregate stability and risk-adjusted performance measures” (Miklaszewska et al. 2021 , p. 10), which significantly improves the reliability of financial stability analysis.

We believe the MENA region is an appealing laboratory for research for the following reasons. First , similar to other regions, the significance of Islamic finance and banking for the economic advancement of these regions, principally in countries with significant Muslim populations, has boldly increased. Islamic finance and banking became a significant part of the development agenda in the MENA region as well. Islamic banking provides multiple financial services, including “Qardh-Al-Hasan, Zakat, Waqf and Social Sukuk, for countering the adverse impact of COVID-19 on SMEs and individuals” (Syed et al. 2020 , p. 11). Hence, it is reasonable to anticipate that the harmful impact of the SAR-COV-2 pandemic on Islamic institutions will be less severe compared to their conventional counterparts, primarily owing to their unique financial structures (Mirzaei et al. 2024 ; Viphindrartin et al. 2022 ). Moreover, IBs hold a dominant position in implementing the Basel III framework, thereby “ensuring sufficient risk protection through compliance with regulatory capital requirements, while CBs are striving to match the standards set by IBs” (Sun et al. 2017 , p. 195). Therefore, investigating whether IBs in the MENA region are more resilient to the pandemic crisis vis-à-vis their conventional peers requires further research.

Second , regardless of the type of bank, the MENA region experiences “a monopolistic market where banks have significant market power”, as indicated by Mateev et al. ( 2022a ). After the global financial crisis of 2007–2008, there was a significant increase in the “market power” of both types of banks, with IBs emerging as the dominant force in market power across the MENA region, as documented by Moudud-Ul-Huq et al. ( 2020 ). Since the increased market power is associated with more concentrated banking markets, the role of market concentration in determining the superior performance of IBs during the pandemic emerges as a crucial issue to explore. Finally , we acknowledge that “there are substantial differences in terms of financial, political, regulative, and economic features, among others, between developed and developing countries, and even within the MENA region” (Mateev et al. 2023 , p. 2). Despite these differences, the outcomes of this study can be generalized to other regions and countries with the prevailing presence of Islamic finance. Moreover, the anticipated role of Islamic finance in the post-SAR-COV-2 period has become a crucial driver for economic recovery and growth in the MENA region post-pandemic (Hassan et al. 2020 ; Syed et al. 2020 ). Therefore, our findings may provide useful guidance for regulators and policymakers in other countries and regions worldwide, suggesting a more significant role of Islamic finance in the recovery from the SAR-COV-2 pandemic.

Our research makes a significant contribution to the banking field in several ways. Firstly , prior research has examined the financial performance of different types of banks in the MENA region in order to determine whether IBs exhibit “greater financial performance during the pandemic than their conventional counterparts”. Several papers also provided a comparative analysis of IBs and CBs regarding “significant differences in terms of systematic risk for conventional and Islamic banks before or during the SAR-COV-2” (Rizwan et al. 2022 , p. 26). Footnote 1 We enhance the existing research by examining the main determinants of bank performance and stability in the competitive context of the MENA region, both before and during the pandemic. Our findings indicate that while in the pre-crisis period, market concentration and efficiency were important determining factors of bank performance for both types of banks, during the pandemic the positive effects of efficiency and concentration on bank stability were only observed within the group of IBs. One possible explanation is that these banking institutions possess a unique business model “in terms of their asset-liability structure and product offering” (Rizwan et al. 2022 , p. 2) which renders them more resilient to the adverse effects of the SAR-COV-2 pandemic.

Secondly , we present new evidence for the moderating effect of market concentration, with a significant negative impact suggesting that increased market competition reinforces the efficiency effect during the pandemic. Our study also adds value to the ongoing discourse on the effectiveness of conventional business models. These models depend on intermediary services and income earned from interest. The debate centers around their continued performance and stability (Miklaszewska et al. 2021 ). Our study, which concentrates on bank performance and stability in the MENA region, provides new evidence in support of Li et al. ( 2021 ) findings, indicating that revenue diversification may enhance bank profitability during a crisis. Specifically, our analysis signifies that non-interest income has a negative effect on the capital ratios of MENA banks, suggesting that these banks do not rely heavily on non-interest revenue sources to mitigate the increased risks during the pandemic. Thus, the findings of this study call for adjustment of the current banking models that heavily rely on intermediation and interest-based earnings, particularly for conventional banks.

Thirdly , our research employs a methodology that is significantly different from the traditional approach of utilizing accounting- or market-data-based measures. We are the first study on the MENA region that employs “aggregate stability and risk-adjusted performance measures” to assess bank performance (Miklaszewska et al. 2021 , p. 10). This approach significantly improves the reliability of financial stability analysis. Finally , our findings provide practical guidance for regulators and bank managers seeking to improve bank stability and performance. For instance, strategies that enhance efficiency and banking market concentration are especially crucial during turbulent times due to their positive effect on banks’ financial stability. These strategies are particularly relevant during the current financial crisis, marked by a strong upsurge in credit and liquidity risks as well as operational expenses. As Islamic banking institutions are more affected by these challenges, our results underscore the need to establish support policies aimed at facilitating their rapid recovery in the post-COVID-19 period.

The rest of the study is structured in the following way. Section “Literature review and formulation of the hypotheses” provides a summary of the findings from the most pertinent studies aligned with the goals of this research and presents the main hypotheses based on this analysis. Section “Data and methodology” describes the methodology, including the samples, variables, and model specifications. Section “Empirical analysis and results” illustrates the results and their interpretation. Section “Alternative tests and robustness checks” includes the robustness tests and their outcomes. Lastly, in Section “Discussions and conclusions”, we provide our conclusions, encompassing policy implications and addressing any research limitations.

Literature review and formulation of the hypotheses

Bank performance and stability in the mena region: islamic banking context.

Since its introduction in the mid-1970s, the Islamic banking sector has acknowledged tremendous growth (Mallin et al. 2014 ). Currently, it possesses “71% (1.7 trillion $US) of the total Islamic financial assets” (Isnurhadi et al. 2021 , p. 841) and is represented by 566 Islamic banks across 76 countries, with an additional 207 Islamic banking windows (Islamic Finance Development Report, 2022 ). The Islamic Finance Outlook ( 2022 ) edition emphasized that the “Islamic finance industry expanded rapidly in 2020 with total assets increasing 10.6% despite the double shock from the SAR-COV-2 pandemic and drop oil prices” (p. 4). On a positive note, S&P Global Ratings ( 2022 ) anticipates that “the global Islamic finance industry will grow by 10%–12% in 2021–2022” (p. 4). Footnote 2 Following the widespread adoption of the “new normal” by global economies, there has been a resurgence in economic activities due to the high demand for technological commodities, oil and gas, and the implementation of digitalization, particularly through the global Fintech transformation. Footnote 3 This has also positively impacted the Islamic banking sector worldwide.

The recent surge in the popularity of Islamic finance can be attributed to various factors. Yilmaz and Gunes ( 2015 ) explain that the continuous interest of policymakers and regulators worldwide has contributed to the rapid spread of Islamic banking. Meanwhile, Bitar et al. ( 2020 ) point out that the sector’s instant development is largely driven by two factors: the aspiration amongst the Muslim population to spread the Sharia law across all economic endeavors and the oil revenues from Gulf countries. Sharia law guides all transactions in Islamic banking, which operates in highly regulated environments (Shawtari et al. 2019 ). As interest is forbidden in Sharia law, IBs rely on transactional and intermediation contracts to earn their profits (El-Hawary et al. 2004 ). Typical types of transactions, or use of funds, include “leasing, purchase and resale transactions (Murabaha(h) and Ijarah) or profit and loss sharing (Mudarabah, trust financing or limited partnership and Musharakah, joint venture, where investment are not required to be paid back)” (Brown et al. 2007 , p. 2). Moreover, “the relationships between IBs and their customers are based on mutual trust, strengthened by shared religious beliefs” (Brown et al. 2007 , p. 2). A key aspect of the social significance of IBs compared to their conventional peers is the ethical considerations. In other words, beyond their distinctive business model, IBs are expected to have a stronger social standing due to their adherence to ethical principles.

However, academic literature lacks consensus on the performance and financial stability of IBs. Some researchers argue that “Islamic banks are, on average, more profitable, more liquid, better capitalized, and have lower credit risk than conventional banks” (Ben Khediri et al. 2015 , p. 75), and therefore, are more stable (Beck et al. 2013 ; Abedifar et al. 2013 ). Other researchers, (see, e.g., Kabir Md. and Worthington, 2017 among others) claim that IBs are less stable than CBs in times of crisis. For instance, Abu-Alkheil et al. ( 2017 ) reported “that CBs grant a higher percentage of loans relative to their peers and are more profitable than IBs in the pre-, during-, and post-crisis periods. Additionally, in the post-crisis period, IBs held more liquidity and experienced a slower recovery. However, their profitability gap with CBs is narrowing” (p. 1). In general, previous studies on IBs performance and stability have yielded inconclusive results regarding their superior performance. Therefore, further research is needed to better address this issue.

When comparing IBs to their traditional counterparts, various factors may account for the differences in their performance. Numerous studies have shown that the primary drivers of bank performance are market concentration and operating efficiency. For instance, Rashid and Jabeen ( 2016 ) conducted an empirical study in Pakistan that “examined the bank-specific, financial, and macroeconomic determinants of bank performance in both Islamic and traditional banks” (p. 1). The study revealed that “operating efficiency, reserves, and overheads are significant determinants of conventional banks’ performance, whereas operating efficiency, deposits, and market concentration are significant in explaining the performance of Islamic banks” (Rashid and Jabeen, 2016 , p. 92). From a theoretical point of view, the “efficiency-structure” (ES) hypothesis provides insight into the link between “market concentration” and “profitability”. This concept argues that the more efficient banks gain higher market share and profitability, thus leading to a concentrated market. Thus, banks operating in concentrated markets are anticipated to be more profitable.

Regarding the efficiency effect, González et al. ( 2017 ) claimed that “in less-competitive markets, increased competition may favor the risk-shifting effect and help improve efficiency, which in turn improves financial stability” (p. 592). Other studies also suggest that enhanced efficiency positively influences the stability of a bank, but “this effect depends on the level of market competition” (Saeed and Izzeldin, 2016 ; Mateev et al. 2022b ; Isnurhadi et al. 2021 ). However, no empirical research has so far analyzed the differential effect of concentration and efficiency on banks in a “dual-banking system”, where banks compete “based on different business models and risk management practice” (Mateev et al. 2022b , p. 12). Our study contributed to this literature by investigating the main factors that explain the discrepancies in bank performance between Islamic vs conventional banking in the developing context of the MENA region.

Islamic banking stability and performance during SAR-COV-2

As noted by previous studies, CBs and IBs share similarities in their banking practices, but their objectives and operational nature differ significantly, including the pricing of their products. Sun et al. ( 2017 ) contends that “while CBs rely on market-determined interest rates to establish lending and borrowing rates, IBs are believed to base this decision on future expected profit-sharing yields rather than market-based interest yields” (p. 195). The distinction between the two banking systems is rooted in the fact that CBs are compelled to adhere to local rules, regulations, and Basel III requirements, while IBs are “required to comply with Shariah principles in both the design of products and also in continually monitoring compliance to these rules from this additional supervisory layer” (Sun et al. 2017 , p. 195).

Therefore, extensive research has been conducted to understand why IBs have shown greater resilience to the COVID-19 pandemic compared to their conventional peers. According to studies conducted by Mirzaei et al. ( 2024 ) and Viphindrartin et al. ( 2022 ), IBs’ unique financial structures may be the cause of their resilience. For instance, IBs’ funding bases are more diversified than those of CBs, and they are less reliant on short-term wholesale funding. IBs also tend to have lower levels of leverage, making them less vulnerable to market fluctuations. The principles of Islamic finance prioritizing risk-sharing and asset backing also aid in mitigating the negative impact of the economic downturn on IBs’ loan portfolios. Nonetheless, this observation is not applicable across the board since the performance of IBs varies depending on the country and individual bank’s approaches to the SAR-COV-2 pandemic (El-Chaarani et al. 2022 ). Supporting this argument, Mansour et al. ( 2022 ) examined the impact of the SAR-COV-2 pandemic on IBs using aggregated assessment of “size, profitability, nonperforming financing, and stability” (p. 265), and reported that the impact of SAR-COV-2 differs across countries in their sample. The study concluded that the measures to be taken by policymakers should not be standardized but instead prioritized based on the IBs short-term response to the pandemic, the country’s economic condition, and macroeconomic aspirations.

Several factors have been identified as contributing to the superior performance of IBs during the SAR-COV-2 pandemic, including Shariah compliance, diversification, and business models. For instance, Alabbad and Schertler ( 2022 ) examined the income and banks’ stock prices responses to “the COVID-19 policy measures in countries with the dual-banking system” (p. 1511) and reported “that the Shariah compliance does not limit the adverse impact of the COVID-19 crisis on Islamic banking, but that IBs performance responds more positively to income support initiatives than the one of conventional banks” (p. 1). Le et al. ( 2022 ) investigated “the relationship between diversification and Islamic banking systems’ performance under the impact of the COVID-19 turmoil” (p. 1). The study confirmed the adverse effects of the SAR-COV-2 shock and reported that “income diversification is found to mitigate the adverse effect of this health crisis on the performance of the Islamic banking systems” (Le et al. 2022 , p. 1). Finally, Boubaker et al. ( 2023 ) examine “whether the Islamic banking business model makes corporate earnings more uncertain [..] with 15 years of data for 532 banks (129 Islamic and 403 conventional) from 23 Muslim countries across the world” (p. 1). The findings suggest that due to higher operational costs, IBs’ return on assets is more uncertain than that of CBs. Furthermore, the research supports previous evidence indicating that “Islamic banks generally have fewer nonperforming loans than conventional banks” (p. 1). Footnote 4

Upon scrutinizing the literature on the topic, several key findings have emerged. Firstly , the majority of earlier studies demonstrated that the SAR-COV-2 pandemic had a significant and unfavorable impact on the performance of both Islamic and conventional banking. However, the prior research produced inconsistent results regarding IBs’ superior performance during the pandemic. Secondly , scholars used various factors, including Shariah compliance, diversification, and business models, to explain the differences in the performance of CBs and IBs during the pandemic crisis. Yet, the significance of market concentration and efficiency in maintaining the stability of IBs during the recent financial crisis has not yet been fully explored. To bridge this gap, we analyzed both the individual and combined effects of concentration and efficiency on banks’ performance and stability in the MENA region. Furthermore, in the next section, we tested several hypotheses regarding the significance of these effects assuming they are more pronounced for IBs and during the SAR-COV-2 pandemic.

Development of hypotheses

Undeniably, the SAR-COV-2 pandemic and the resulting financial crisis have significantly impacted the way banks generate profits and assess risks, resulting in a shift in their business models (Carletti et al. 2020 ). Studies that investigate bank performance have identified several factors that determine the stability of banks, with a particular focus on competition and efficiency in the banking market. These findings align with either the “efficient-structure” (ES) or the “structure-conduct-performance” (SCP) hypotheses. The ES hypothesis posits that firms which are efficient have the ability “to generate higher profits, leading to an increase in size and market share and resulting in higher market concentration”. This, in turn, can be “explained by lower costs achieved through either superior management or production processes” (Goldberg and Rai, 1996 , p. 746). Therefore, efficiency leads to a concentrated market. In contrast, the SCP theory postulates that “high market concentration and market power motivate banks to set favorable prices and achieve higher and extraordinary income” (Kozak and Wierzbowska, 2021 , p. 40). Empirical studies tested the SCP hypothesis by “examining the relationship between profitability and market concentration with a positive relationship indicating non-competitive behavior in concentrated markets” (Goldberg and Rai, 1996 , p. 746). In line with the SCP theory, we can assume that market concentration will positively affect bank performance. However, it remains unclear whether these relationships depend on the type of the business model (i.e., Islamic vs. conventional). Most previous studies suggest that IBs banks are less vulnerable to the SAR-COV-2 pandemic compared to their conventional peers (Alabbad and Schertler 2022 ; Aliani et al. 2022 ). Therefore, we expect that the superior performance of IBs during the pandemic is influenced by “the level of market concentration and efficiency” in these markets. Footnote 5 In order to assess this proposition, we test the following hypotheses:

H1a: Market concentration and efficiency exert a significant influence on MENA banks’ profitability .

H1b: This effect is anticipated to be stronger for IBs and during SAR-COV-2 .

While prior research has explored the topics of efficiency and financial stability separately, there are few studies examining the paradigm of efficiency-default risk. For instance, Saeed and Izzeldin ( 2016 ) conducted “a comparative analysis of conventional and Islamic banks in the GCC countries, discovering that the absence of a trade-off between efficiency and stability for IBs suggests that efficiency and default risk are plausible early warning indicators of IBs instability” (p. 1). However, it is possible that higher efficiency levels could lead to elevated risk levels, ultimately exposing banks to financial difficulties. Moreover, the SCP theory posits that “market concentration or market power is the primary factor driving a bank’s superior performance” (Goldberg and Rai, 1996 , p. 746). As a result, banks operating in concentrated markets are less likely to collide in order to achieve higher profits. Consequently, these banks are willing to accept more risk. The empirical literature provides inconclusive evidence of these effects. While Miklaszewska et al. ( 2021 ) reported “a positive but insignificant relationship between market concentration and a bank’s probability of default” (p. 1), Mateev et al. ( 2022a ) claimed a “positive and nonlinear association between market concentration and bank stability for CBs, but a negative for IBs” (p. 10). However, there is no evidence supporting the “efficiency-default risk” paradigm in a comparative setting that includes IBs. Whether this differential effect is more pronounced during the recent financial crisis remains unclear. Therefore, to address this puzzling issue, we test the following hypotheses:

H2a: MENA banks’ stability is positively associated with marker concentration and efficiency .

H2b: This effect is anticipated to be stronger for IBs and during SAR-COV-2 .

The banking industry’s conduct has undergone a considerable shift in public perception following “the global financial crisis of 2007–2008.” This event has highlighted the significance of maintaining banking system stability and controlling risk (Allen et al. 2009 ), as well as ensuring an adequate level of capitalization (Demirgüç-Kunt and Huizinga, 2010 ). An increase in the capital ratios of banks has been observed in various regions and countries after the crisis, which is largely due to “increases in capital, the issuance of new equity and/or retained earnings, and assets declining” (Carletti et al. 2020 , p.48). Prior research has explored the paradigm of capital-to-bank stability and attempted to evaluate the impact of efficiency on bank risk. For instance, Isnurhadi et al. ( 2021 ) studied “the relationship between bank capital, efficiency, and risk in Islamic banks” (p. 841). The research reported that “the interaction test of bank capital and efficiency shows that efficiency encourages banks to reduce risk, including when bank capital is relatively lower” (Isnurhadi et al. 2021 , p. 841). However, the association between market concentration and bank capitalization remains ambiguous. In their study on the “Central, Eastern, and Northern European Countries (CENE)” region, Miklaszewska et al. ( 2021 ) found “no evidence for a significant correlation between market concentration and bank capitalization” (p. 18). However, their analysis indicates that “bank size, loan dynamics, and non-performing loans portfolios are negatively correlated with banks’ capital ratios” (p. 17). In the context of the MENA region, the anticipated consolidation prompted by the pandemic may diminish competition and foster the creation of oligopolistic market structures. (Hamadi and Awdeh, 2020 ). As a result, SAR-COV-2 may exacerbate the impact of market concentration on banks’ capital ratios, thereby enhancing their financial stability. To test this proposition, we frame out the last two hypotheses in the following way:

H3a: Market concentration and efficiency exhibit a significant correlation with banks’ capital ratios .

H3b: This effect is anticipated. to be stronger for IBs and during SAR-COV-2 .

Data and methodology

Sample selection.

Our data set spans the period from 2006 to 2021 and contains banks from 20 MENA countries, including the GCC countries. Our main source of bank accounting data is the Orbis BankFocus (Bureau van Dijk) database. Furthermore, we compiled data from annual reports available on bank websites to establish a comprehensive database for banking institutions in the MENA region. We also utilized the World Bank database, specifically the “World Development Indicators”, to gather macroeconomic data. To ensure that our analysis covered both pre- and SAR-COV-2 pandemic periods and that we had sufficient yearly data availability, we selected a specific time frame. This allowed us to gain a deeper understanding of how market concentration and efficiency affected bank performance and stability. We excluded banks with missing accounting information, resulting in a data set of 575 banks (both Islamic and conventional). One of the main benefits of our sample is its diversity in terms of country, bank type, and income group (see Table 1 ). Our data set is unbalanced and includes a larger number of conventional (471) than Islamic (104) banks. Following previous studies, “all the variables are winsorized at the 1% and 99% levels to mitigate the effect of outliers” (Bitar et al, 2016 , p. 11).

Econometric model

To assess the association between market concentration, efficiency, and bank performance (profitability and risk), we employ the following estimation model:

In this setting, BP it is the measure of the financial performance (profitability and risk) of bank i in year t ; similarly, BC it is the measure of the capitalization level of bank i in year t . We use “three accounting measures” of bank profitability (return on assets, ROA, return on equity, ROE, and cost-to-income ratio, C/I). In addition to the traditional bank stability measure ( Z -score), we employ two comprehensive measures of bank performance and stability. Specifically, we compute the Multilevel Performance Score (MLPS) index and the Financial Stability Indicator (FSI), following the methodology proposed by Miklaszewska et al. ( 2021 ). The bank’s capitalization level is proxied by the capital adequacy ratio (CAR), equity to total assets (E/TA) ratio, and total capital requirements (TCR). Guided by Mateev et al. ( 2022b ) “banking market concentration is proxied by the Herfindahl-Hirschman index (HH-index) where the index is a measure of market concentration calculated as the sum of the squared market shares for each bank in a country” (p.15). As an alternative measure of concentration, we employ “the share of top five banks in total assets of a country’s banking sector (CR5). X it-1 is a vector comprising “bank-specific and country-specific variables” that are widely acknowledged in studies focusing on empirical research in banking as “significant determinants of bank performance”. The GCC dummy variable indicates whether a bank belongs to any of the GCC countries. It equals 1 if the bank is a member and, 0 otherwise. In our robustness tests, we employ a crisis dummy variable indicative of a systematic crisis, in our case, the SAR-COV-2 pandemic. Table S1 (see Supplementary Materials) explains the meaning of all the variables employed in the model and their data sources.

Following prior research (Abedifar et al. 2013 ; González et al. 2017 ; Mateev et al. 2022a ; Mateev et al. 2023 ), we utilized fixed effect/random effect specifications in our analysis. We performed a Hausman test to make our preferred model choice between random effects and alternative fixed effects. Following Mateev et al. ( 2022a ), “the choice between random and fixed effects specification depends on the Prob > chi 2 being more or less than 5% (if Prob > chi 2 is <0.05 use fixed effects)” (p. 10). To address the issue of time-related factors that may influence bank performance, we included “year dummy variables” in our reference model and conducted a robust Hausman test. The year dummies show significance at usual levels, suggesting temporal variations during the observation period. Footnote 6 For robustness purposes, we employed the “Generalized Method of Moments (GMM)” system estimator, which is known to produce more precise and durable outcomes than FE/RE specifications (García-Herrero et al. 2009 ). GMM estimator is commonly used in financial research, specifically in studies regarding banking. Methods based on the GMM estimator “are particularly useful for models incorporating endogenous or predetermined explanatory variables” (Miklaszewska et al. 2021 , p. 12).

Measures of bank profitability and risk

This study explores various indicators of bank performance (profitability and risk), which are widely utilized in the empirical literature. We employ “the return on asset ratio (ROA), which reflects how effectively banks generate profits from the total assets, and the return on equity ratio (ROE), which assesses the return on the shareholder’s equity, both as a proxy of bank profitability” (Mateev et al, 2023 , p. 15). The “cost to income ratio” (C/I) is included “to control for any cross-bank differences in terms of efficiency; a higher value indicates a lower level of efficiency” (Bitar et al. 2016 , p. 5).

According to prior research, it is relevant to assess the efficacy of banking institutions not only through individual ratios, but also through “aggregate financial stability indices, considering different aspects of banks’ financial strength such as profitability and capital adequacy, and major risks - credit and liquidity risk” (Kocisova, 2015 , p. 1). Therefore, in addition to the conventional financial stability indicator (distance to default), we utilize two comprehensive measures of bank stability and risk-adjusted performance: “Multi-level Performance Score” (MLPS) and “Financial Stability Indicator” (FSI). The “distance to default or Z -score”, measures the proximity to insolvency (Roy, 1952 ), and “is determined by combining the bank’s Return on Assets (ROA) with the capital-to-asset ratio, and then dividing it by the standard deviation of ROA over a five-year period” (Issa et al. 2024 , p. 15). It is well known that a higher Z -score signifies reduced exposure to insolvency. Several methods exist for constructing the Z-score measure, which are elaborated in detail by Lepetit and Strobel ( 2013 ). For this particular study, we follow Beltratti and Stulz ( 2012 ) and compute the Z -score over a period of 5 years ([ t  − 4, t ]) on the return on assets (ROA) and its standard deviation (σROA) via a rolling window. Because of the skewed distribution of this measure, a natural logarithm transformation is implemented.

The computed performance measures for MENA banks during the 2006–2019 period, as well as the 2020–2021 figures, are reported in Supplementary Materials. Specifically, Table S2 summarizes the results for Z -Score, FSI, and MLP measures and Table S3 —the results for profitability and equity ratios for the same two periods. From the analysis of the data in these two tables, we can conclude that the SAR-COV-2 pandemic has mostly affected bank profitability, whereas financial stability and bank capitalization remain relatively strong. A noteworthy improvement in the aggregate bank performance has been observed between 2013 and 2019, followed by a significant drop in 2020 and 2021, as illustrated in Fig. 1 . All the performance measures used in this analysis (MLP-score, FSI, and LogZ) are weighted by total assets.

Dynamics of bank stability and aggregate performance indicators during the period 2006–2021.

Measures of efficiency and market concentration

To calculate the efficiency scores, we employed “Data Envelopment Analysis (DEA)”, which was originally conceived by Charnes et al. ( 1978 ). According to Mirzaei et al. ( 2024 ), “DEA is a linear programming-based method of comparison that involves benchmarking multiple decision-making units (DMUs) with multiple inputs and outputs. DEA estimates the production possibility frontier and evaluates the efficiency of each DMU against the frontier” (p. 338). In this approach, “the analysis determines the optimal efficiency frontier by identifying the most efficient DMUs that achieve the highest level of outputs while minimizing inputs. The efficiency scores obtained from DEA range from 0 to 1, where a score of 1 indicates that a DMU operates at maximum efficiency” (Issa et al. 2024 , p. 12). To calculate “DEA efficiency scores”, we followed the intermediation approach proposed by Chaffai and Hassan ( 2019 ). Table S4 (see Supplementary Materials) details ‘the intermediation approach for the inputs and outputs” used to calculate the efficiency scores. Following Issa et al. ( 2024 ), we utilize “three proxies of bank efficiency using input-oriented and output-oriented DEA models” (p. 12), namely, constant returns to scale (CRS), variable returns to scale (VRS), and SCALE (which is computed as the ratio of the first two). According to the empirical literature, “a score greater than 1 indicates that the bank is operating more efficiently than the average bank in the sample, while a score less than 1 indicates lower efficiency (Issa et al. 2024 , p. 12). Consistent with previous research, we anticipate a positive correlation between efficiency and bank performance.

The concentration level in the banking market is assessed using the “Herfindahl-Hirschman index” (HHI). According to Hamza and Kachtouli ( 2014 ), this measure “is calculated by summing the squares of the market shares of every bank in the market or a country, and it varies between zero (situation of pure and perfect competition) and 10,000 (100 2 : monopoly position)” (p. 35). Table S4 (see Supplementary Materials) details index definition and the estimation approach. Our second concentration measure is “the share of top five banks in total assets of a country’s banking sector (CR5).” Previous research has shown that market concentration can impact bank performance, either positively or negatively. For instance, a study by Tan et al. ( 2017 ) utilized “the Lerner index and a three-bank concentration ratio to test further the impact of competition on bank profitability” (p. 2) in the Chinese banking sector. The study reported that “the concentration ratio is significant and negative indicating lower concentration leads to higher bank profitability which is different from the results reported from Lerner index” (Tan et al. 2017 , p. 13). However, Agustini and Viverita ( 2012 ) asserted that “concentration has a positive effect on bank performance as postulated by structure-conduct performance (SCP) hypothesis” (p. 39). Finally, González et al. ( 2017 ) reported that “a positive relation between concentration and Z -score is observed in non-Gulf countries, and the opposite for Gulf countries” (p. 601). Therefore, the sign of this relationship remains unclear.

Control variables

In our analysis, we utilize key characteristics of banks that have been identified by Miklaszewska et al. ( 2021 ), Mateev et al. ( 2022b ), and Mirzaei et al. ( 2024 ) as important factors in determining bank performance and stability. These factors include loans, non-interest income, non-financial loan growth rate, liquid assets, size, capital adequacy ratio, non-performing loans, and leverage (equity to total assets). As control variables, we subject these characteristics to our regression analysis. Previous research has suggested that size is a crucial determinant of bank performance, but its precise impact on profitability is uncertain. For instance, Blatter and Fuster ( 2022 ) found evidence supporting the economies of scale effect, as they discovered that efficiency and profitability tend to increase with bank size for most Swiss banks in their sample. However, other studies suggested that “large banks have lower cost efficiency, which indicates the presence of diseconomies of scale for banks in OPT” (Sarsour and Daoud, 2015 , p. 55). The factor “contributing to diseconomies of scale is that larger banks become difficult to manage” (Yeddou, 2023 , p. 10). In overall, the analysis of previous studies suggests that larger banks should exhibit better performance. Therefore, we assume a positive correlation with bank performance.

To estimate a bank’s financial strategy, we employed “the ratio of net loans to customer deposits” (Kosmidou, 2008 , p. 1). This measure presents “the relationship between comparatively illiquid assets (e.g., loans) and comparatively stable funding sources (e.g., deposits and other short-term fundings)” (Kosmidou, 2008 , p. 1). A low percentage indicates that the bank has sufficient liquidity to manage anticipated outflows related to loans. As a result, we predict that liquidity risk will have a positive association with bank performance. To control the bank’s level of income diversification, we employ “non-interest income to total assets ratio”. In accordance with prior research findings (Nguyen, 2012 ; Miklaszewska et al. 2021 ), we anticipate that bank stability and performance will exhibit a positive correlation with this variable. Following Neto et al. (2021), we measure banks’ risk preferences by using two ratios, “the leverage ratio (equity to total assets) and the liquidity ratio (liquid assets to total assets)” (p. 105). The liquidity ratio serves as an indicator of a bank’s ability to manage financing difficulties and reduce its balance sheet, as highlighted by Beltratti and Stulz ( 2012 ). It is our prediction that there should be a positive correlation between a bank’s liquidity and its overall performance.

Additionally, our analysis includes three widely used macroeconomic indicators, “the annual percentage growth rate of GDP, the inflation rate, and the percentage of domestic credit to the private sector as a percentage of GDP”, with the aim of accounting for differences in banks’ external environments. Previous studies have shown that economic growth is positively associated with bank profitability, suggesting that higher GDP growth will likely lead to improved bank performance. Conversely, inflation tends to increase bad debts, forcing banks to incur extra expenses to manage credit risk, which ultimately reduces their efficiency level (Pasiouras, 2008 ). This may adversely affect the bank’s profitability. However, Bourke ( 1989 ) and Molyneux and Thornton ( 1992 ) reported a positive association between inflation and bank profitability. Therefore, the net impact of the inflationary index remains ambiguous. We employ domestic credit as a percentage of the GDP ratio as a banking sector development indicator and assume a positive association with bank profitability (Miklaszewska et al. 2021 ).

Empirical analysis and results

Descriptive summary.

Table 2 shows the “descriptive statistics” for the banks in our sample. The ratios were computed and compared across different banking systems in the MENA region (i.e., Islamic vs. conventional). Based on the results presented in the table, we derive valuable conclusions regarding the performance of each banking system.

First, we observe that CBs are more profitable over the entire observation period (2006–2021); both ROA and ROE exceed the profitability levels of IBs. In terms of aggregate performance, the higher value of the composite measure MLPS shows a better assessment of bank performance for IBs (1.69 vs. 0.83). However, the short-term stability indicator (FSI) takes a negative value for IBs (a mean of −0.02) but a positive value for CBs. To better understand the reasons for these results, we calculated the FSI for each country in the sample and found that the FSI values were not homogeneous across the sample (see Table S2 ). For some countries, the values are higher in the 2020–2021 period than in the preceding years (e.g., the Syrian Arab Republic and Yemen), indicating a strong and stable financial position of banks in these countries. For others (e.g., Iran and Tunisia), we found evidence of substantial credit risk related to the non-performing loan (NPL) portfolio (both before and during the pandemic) that translates into negative values of the FSI index. The measure of efficiency (DEA score) displays comparable values for both CBs and IBs, with a mean difference significant at the 1% level. Regarding financial stability, our analysis indicates that CBs are riskier than IBs, as demonstrated by the “distance-to-default, or Z -score measure” (2.51 vs. 2.84). Our further analysis of banks’ riskiness prior to and during the SAR-COV-2 pandemic shows that the primary reason for this outcome is the superior financial stability of IBs during the pandemic period (2020–2021), as evidenced by a higher Z -score (3.13 compared to 2.80).

Drawing from the data provided in Table 2 , it can be noticed that the capital adequacy ratio (CAR) ranges from 21% to 25% (on average) across the sample banks. This number exceeds the minimum requirement for capitalization indicated by Basel agreements. Nevertheless, IBs appear to be better capitalized than CBs, with 25.5% compared to 21.5%. These findings remain consistent when comparing the total capital requirements (TCR) across different types of banks. Upon analysis, it was found that IBs exhibit a higher loan-to-total asset ratio and outperform CBs in terms of loans as a percentage of total deposits (66.3% vs. 60.9%). However, it is difficult to determine whether IBs performed better as the mean difference between the two groups is statistically insignificant. On the other hand, CBs hold more liquid assets (44.2% vs. 34.9%), while the level of bank leverage, assessed by the “equity-to-total assets ratio,” appears to be comparable in both samples. The non-financial loan growth rate, which reflects changes in the supply and demand of loans to non-financial institutions, is negative in both samples. Additionally, we provide estimations for the level of concentration of the MENA banking market, using the Herfindahl-Hirschman Index (HHI) and the concentration ratio (CR5) as proxies. The average HHI of the two samples is 0.20, indicating moderate concentration, with a statistically significant mean difference at the 1% level. The level of concentration measured by the CR5 ratio is relatively high for both IBs and CBs (around 60%).

The effects of market concentration and efficiency on bank profitability

The following section discusses the outcomes of bank performance evaluations conducted with the model specifications outlined in Eq. ( 1 ). Bank profitability served as the dependent variable, and two distinct metrics were used to determine profitability (ROA and ROE), alongside the cost-to-income (C/I) ratio, which was utilized as a measure of cost-effectiveness.

Tables 3 and 4 showcase the findings for various banking systems (IBs and CBs) and their performance during the pre-pandemic and pandemic periods, respectively. Specifically, data in Table 3 for the pre-pandemic period indicate that IBs profitability (measured by ROA) is strongly determined by both market concentration and efficiency (see Model 4) while these effects are insignificant within the sample of CBs. The same effect is observed for ROE, as reported in Models 2 and 5. Therefore, we find partial support for our first hypothesis (H1a). However, the effect of concentration and efficiency on cost-effectiveness is significantly negative (see Models 3 and 6). This suggests that concentrated banks and those with better efficiency are able to improve their level of operating effectiveness, regardless of their business model.

Our findings for the limited role of concentration in explaining the CBs profitability align with those reported for other developing regions (see, e.g., Miklaszewska et al. ( 2021 ) for the CENE region). However, the profitability of IBs is positively associated with efficiency. This finding is consistent with earlier studies that highlight efficiency as a critical factor influencing bank performance (Cristian et al. 2020 ; Mateev et al. 2022b ). As a result, it appears that, before the pandemic, banks in concentrated markets and those with higher efficiency were able to achieve better performance. Since these effects are significant only for IBs, we confirm the validity of the H1b hypothesis. Next, we explore the “moderating effect” of market concentration on the relationship between efficiency and bank performance. The interaction term’s coefficient is significant and negative only within the sample of IBs (refer to Model 4). This suggests that in concentrated markets, the positive impact of efficiency on bank performance weakens. The reason is that concentrated markets are typically less competitive when banks’ market power is high. According to the SCP paradigm, market concentration encourages collusion between firms. Therefore, firms that operate in concentrated markets (characterized by a few dominant firms) may generate more substantial profits, regardless of their efficiency (Molyneux and Forbes, 1995 ). In contrast, our findings for the MENA region demonstrate that banks may benefit from their improved efficiency if they operate in less concentrated markets (banks with lower market power). The predominant impact of concentration and efficiency on IBs suggests that policymakers may consider customized measures, focusing on the IB’s prompt response to the pandemic, the economic situation of the country, and any government support initiatives, rather than standardized solutions. Footnote 7

When examining the control variables, we can see a noteworthy impact of several bank characteristics. These include loans, non-interest income, size, non-financial loan growth, liquid assets, and non-performing loans. Our finding suggests that key bank characteristics determine the profitability of MENA banks, regardless of their business models. Liquidity, as measured by loans-to-deposits ratio, demonstrates a positive correlation with bank profitability (ROA and ROE), while negatively influencing a bank’s cost efficiency. Non-interest income and bank size positively affect both types of banks, while non-financial loan growth and liquid assets are significant only within the sample of CBs. Bank size has a notably positive effect on profitability, as identified in previous research by Flamini et al. ( 2009 ), who argue that larger banks have the potential to gain efficiency advantages and earn higher revenues due to operating in less competitive markets. As expected, an increase in non-performing loans decreases profitability, but it also leads to an increase in banks’ cost inefficiency. Regarding the impact of our “macroeconomic variables”, the business cycle (GDP growth) negatively affects the profitability of both types of banks, while inflation and domestic credit to the private sector have no significant impact. These results corroborate the findings of some previous studies (Mateev et al. 2022a , Miklaszewska et al. 2021 ).

Table 4 illustrates the results of bank performance during the SAR-COV-2 pandemic. Our analysis reveals that market concentration and efficiency are crucial factors influencing the profitability of CBs in the MENA region during the pandemic; however, this effect is insignificant for IBs. This finding contradicts the first hypothesis (H1b), suggesting that market concentration and efficiency would have a stronger impact on IBs performance during the pandemic. One potential explanation for this result is that Islamic banking institutions entered the “global financial crisis” in 2020 with better efficiency and higher capitalization levels (Mirzaei et al. 2024 ). Another explanation is that “unlike conventional securitization, which is marked by significantly low bank stability, an issuance of Islamic securitization leads to lower bank risk” (Abdelsalam et al. 2022 , p.1). Therefore, a further increase in market concentration and bank efficiency is not necessarily associated with improved profitability of these financial institutions. The moderating effect of market concentration is negative and of marginal significance, supporting the notion that “banks with better efficiency are more profitable [..] in more competitive environments” (Mateev et al. 2023 , p. 23). Therefore, in such circumstances, efficient banks are likely to be better positioned to mitigate the negative impact of the SAR-COV-2 pandemic, as markets with higher level of competitiveness create favorable conditions for these banks to improve their performance during the crisis.

The effects of market concentration and efficiency on bank stability

Our study also examines the impact of market concentration and efficiency on bank stability, and whether these effects are more pronounced during the SAR-COV-2 pandemic. To analyze bank stability and soundness, we used the following measures: distance to default (Z-score), multilevel performance index (MLPS), and financial stability indicator (FSI). Tables 5 and 6 illustrate the results for various banking systems (IBs and CBs) during the pandemic and the pandemic periods.

Table 5 shows that the coefficient estimates for concentration and efficiency variables are positive and possess statistical significance. This result suggests that increased levels of efficiency and concentration are associated with enhanced financial stability of MENA banks, as indicated by both the default risk ( Z -score) and MLPS indicator. However, the expected signs of concentration and efficiency effects are opposite to our predictions when the dependent variable is the short-term financial stability (FSI). To better understand the reasons for these results, we calculated FSI for each country and found that FSI values were not homogeneous across the two samples and negative in the case of IBs, which indicates a substantial credit risk related to NPLs, particularly during the pandemic. Moreover, the results for FSI reported in Models 3 and 6 are statistically insignificant. One possible explanation is the fact that IBs faced significant credit risk associated with non-performing loan portfolios at the onset of the pandemic. This was exacerbated by the fact that Islamic institutions in some countries in the MENA region lacked access to certain liquidity management measures announced by central banks, “either due to the absence of credit lines for Islamic banks or legal impediments” (Rizwan et al. 2022 , p. 2). In overall, our results for banks in the MENA region align with the findings for other developing economies. For instance, Miklaszewska et al. ( 2021 ) in their study on the CENE region, discovered an insignificant relationship between market concentration (proxied by the HH-index) and probability of default ( Z -score). Similarly to our study they found that the link between market concentration and the aggregate performance indicator (MLPS) was marginally significant and positive, but negative for the FSI indicator.

The larger estimated coefficients of our variables of main interest indicate that the reported associations with bank stability are stronger for IBs than for CBs, which aligns with our expectations. The improved efficiency and stability of IBs in the “pre-pandemic period” can be attributed to changes in regulations and market conditions in the MENA countries. These factors compelled IBs to adopt best practices and enhance operational efficiency to maintain competitiveness (Otero et al. 2020 ). As a result, their ability to withstand adverse shocks such as the SAR-COV-2 pandemic has increased. Footnote 8 The statistical significance of the moderating effect of market concentration on efficiency is negative for both types of banks. This suggests that efficient banks are able to achieve better financial stability when operating in less concentrated markets; notably, this observation remains consistent regardless of their business model. Our findings align with the predictions of the “competition-stability theory” (Boyd and De Nicolo, 2005 ) which suggests that competition decreases the volume of “non-performing loans” while increasing the stability of the bank. This effect is particularly noticeable for banks that demonstrate higher levels of efficiency. However, our results contradict those of González et al. ( 2017 ), who confirmed “the importance of the market structure as an explanatory factor for the financial stability of banks in the MENA region, but also show that higher concentrations do not have to be associated with less competitive markets as predicted by the SCP hypothesis” (p. 10).

Table 6 reports the results for bank stability during the SAR-COV-2 pandemic. We observed a notable difference in how market concentration and efficiency influence the stability of IBs and CBs during the pandemic. The significantly positive effect on IBs performance (measured by the Z-score and the two aggregate performance indicators) provides strong support to our second hypothesis (H2b). This finding aligns with the competition-fragility nexus which can be explained by the competition hypothesis. Two arguments support the view that high competition may increase banks fragility (Allen and Gale, 2004 ; Hellmann et al. 2000 ; Keeley, 1990 ). The first argument is that “high competition in the financial market erodes market power, lowers the profit margin and capital buffer, and results in reduced franchise value” (Md. Noman et al, 2017 , p. 3). In response, banks might be motivated to assume more risk to offset declines in their franchise value and profits (Marcus, 1984 ; Keeley, 1990 ). The second argument suggests that in competitive markets, diminished financial rewards from intermediation could lead banks to reduce their scrutiny of potential borrowers, possibly lowering loan quality and compromising the bank’s stability. Our findings indicate that if concentrated markets are associated with a lower degree of competition, increased concentration will compel banks to enhance their financial stability.

The validity of our results is confirmed by the fact that both market concentration and efficiency effects are not only statistically significant but also economically relevant for banking stability. Data in Table 5 indicates that a “one standard deviation increase” in market concentration (13%), causes an increase of 9.035% (=0.695*13%) of bank stability for CBs and 97.27% (=7.482*13%) for IBs (see Models 1 and 4). Likewise, the concentration effects are economically relevant for both types of banks (CBs and IBs) when the overall performance is measured by the MLPS index (see Models 2 and 5). However, in the context of banks' short-term stability measured by the FSI index, the economic relevance of the concentration effect is insignificant, as evident from the estimated coefficients of the HHI measure (see Models 3 and 6). The analysis of bank stability during the crisis period (2020–2021) indicates the concentration effect is economically significant only for IBs (see Table 6 ). For instance, a “one standard deviation increase” in market concentration (13%) results in a 5.24% increase (=0.403*13%) in banks’ short-term stability (see Model 6). Similarly, efficiency also shows a significant economic effect.

When examining bank performance in the MENA region, certain findings of our analysis are notably significant. First , the analysis has highlighted that concentration and efficiency effects are particularly pronounced within the sample of IBs. Our explanation is that IBs possess a unique business model “in terms of their asset-liability structure and product offering.” Second , MENA countries with dominant Islamic banking markets have seen a rise in concentration levels as a result of the SAR-COV-2 pandemic, much like other developing regions (Hamadi and Awdeh, 2020 ). These two factors have enabled IBs operating in concentrated markets to demonstrate increased financial stability compared to their conventional peers. Third , since enhanced efficiency (and concentration) leads to better financial stability, new governance-related initiatives grounded on Sharia’s values should be implemented as factors “enabling Islamic banking institutions to mitigate the negative effects of global financial crises such as the COVID-19 pandemic” (Abdulla and Ebrahim, 2022 , p. 240).

The effects of market concentration and efficiency on bank capitalization

Tables 7 and 8 display the results of the regression analysis for banks’ capital positions (see model specification outlined in Eq. 2 ). We use three different measures of a bank’s capitalization level, specifically “equity to total assets (E/TA), capital adequacy ratio (CAR), and total capital requirements (TCR)”.

Our analysis yields several interesting results. Firstly, it is evident that prior to the SAR-COV-2 pandemic, both concentration and efficiency had a notable impact on the capital position of MENA banks, which confirms our last hypothesis (H3a). However, these effects are statistically significant only in the sample of CBs (see Models 1 and 2). Secondly, during the pandemic, concentration and efficiency had a significantly positive effect on “capital adequacy ratio” (CAR) but a negative impact on “equity to total assets ratio” (E/TA). According to prior research, these effects can be credited to the recent financial crisis, “which resulted in a decrease in equity and an increase in regulatory capital” (Miklaszewska et al. 2021 , p.16) as a response to the need to establish “a sufficient capital conservation buffer to mitigate the impact of downside risk during the pandemic” (Demirgüç-Kunt et al. 2021 ). In line with our predictions, these effects are more pronounced within the sample of IBs, which aligns with our last (H3b) hypothesis. Market concentration shows a significant moderating effect which is negative during the pandemic period, indicating that efficient banks operating in more competitive markets are also better capitalized, particularly when the banking institution is Islamic.

Our results revealed that during the SAR-COV-2 pandemic, bank characteristics such as loans as a percentage of deposits, loan size, liquid assets, and “non-performing loans” had a significantly positive effect on banks' capital ratios. Conversely, non-financial loan growth and non-interest income were negatively correlated to the capital adequacy level of the MENA banks. Thus, our empirical results failed to sustain the idea that “traditional bank business models based on intermediation do not guarantee satisfactory profitability [..], but also deplete banks’ capital basis. This observation is supported by the positive impact of non-interest incomes on bank capital ratios” (Miklaszewska et al. 2021 , p.16). On the opposite, our findings imply that MENA banks do not rely heavily on “non-interest revenue sources as part of their income diversification strategy” during the SAR-COV-2 pandemic. The analysis outcomes have strong policy implications for regulatory authority which should mandate bank managers to adopt a more disciplined approach towards lending decisions and request to establish a “sufficient capital conservation buffer.” This is remarkably crucial in the context of the SAR-COV-2 pandemic when banks face serious liquidity issues.

Alternative tests and robustness checks

We conducted several robustness tests to verify the validity of our results. Because the econometric models employed in this study are “dynamic panel models”, using conventional econometric techniques like OLS and FE estimators can be challenging due to the “possible correlation between the delayed endogenous variable and the unobservable effects” (Neto, 2021 , p. 114), which can result in biased and inconsistent estimates. Arellano and Bond ( 1991 ) and Blundell and Bond ( 1998 ) proposed the “General Method of Moments (GMM)” estimator as a solution to this problem. In the empirical literature, the GMM estimators can be categorized as “difference GMM estimator” and “system GMM estimator” developed by Arellano and Bover ( 1995 ) and Blundell and Bond ( 1998 ), respectively (Neto, 2021 ). García-Herrero et al. ( 2009 ) reported that “the GMM estimator system is capable of accounting for factors such as potential endogeneity, unobserved heterogeneity, as well as the persistence of the dependent variable” (p.10). Therefore, in this study, we employed one-step “GMM estimator system” to estimate our reference model (see Eq. ( 1 ) and Eq. ( 2 )). We also conducted a Sargan-Hansen test to evaluate “the accuracy of our instruments” and to ensure that over-identifying restrictions were met. Finally, we apply Arellano and Bond’s test to identify the non-existence of second-order autocorrelation, AR(2). Tables 9 and 10 display the results of this analysis for the pre-pandemic and pandemic periods, respectively. Our earlier findings for the pre-pandemic period, reported in Table 3 , are confirmed, demonstrating a significantly positive correlation between market concentration, efficiency, and bank profitability. During the pandemic these effects are significant only in the sample of CBs, which coincide with our results reported in Table 4 . The moderating effect of concentration is marginally significant and negative for both pre-pandemic and pandemic periods. Our findings indicate a strong positive effect of efficiency on bank performance for either type of bank.

Next, our robustness tests involved a variety of measures for our independent variables. First, we employ the “five-bank concentration ratio” (CR5) as a substitute for banking sector concentration. Our first hypothesis posited that market concentration and efficiency should exert a significant and positive influence on profitability. Moreover, we anticipated this effect to be stronger for Islamic banking institutions and during the SAR-COV-2 pandemic. The results reported in Tables S5 and S6 (see Supplementary Materials) confirmed these expectations only for the pre-crisis period. Second, we use the “net interest margin (NIM)” ratio as another proxy for bank profitability and growth. The analysis using the NIM variable supports Tan et al. ( 2017 ) who reported that “efficiency plays a significant and negative impact on bank profitability when measured by ROA, but a positive impact on ROE and NIM” (p.12). Following previous research (see e.g., Abdallah and Ismail, 2017 ), we use Tobin’s Q as “a market-based proxy” for bank performance. The results (not reported here due to space limitation) confirmed that concentration and efficiency effects are more pronounced during the SAR-COV-2 pandemic, particularly in the sample of IBs.

Finally, instead of using two separate periods (before and during SAR-COV-2), we included a crisis dummy variable “which takes value of 1 for the years 2020 and 2021, and 0 otherwise”. Regression outcomes reported in Table S7 , (see Supplementary Materials) indicate a strong negative impact of the pandemic on banks profitability in the MENA region. Moreover, we find a significant interaction effect of the pandemic variable with concentration and efficiency on bank profitability (the coefficient estimates of the two interaction terms with “the crisis dummy” are significantly negative). This suggests that the positive impact of concentration and efficiency on bank performance deteriorates during the SAR-COV-2 pandemic. Although the pandemic shock significantly reduced banks’ profitability, it was not detrimental to MENA banks’ stability (see Table S2 ).

We also investigate whether market concentration and financial performance are “endogenously determined” using the “two-stage least squares (2SLS)” approach (Farag et al. 2018 ). Table S8 (see Supplementary Materials) presents the estimation results of the “instrumental variables (IV)” regressions conducted using the 2SLS method. As expected, the instrument (three lags of the HH-index) shows a high level of significance in the “first-stage” regression. In the “second stage”, we observe a robust and positive correlation between the “fitted value of the HH-index” and the “financial performance, as measured by ROA and ROE”, across different samples (i.e., Islamic and conventional banks). The results align with those reported in Tables 3 and 4 , indicating that banks operating in concentrated markets with less competition achieve better financial performance. This effect is particularly notable among IBs. To address potential endogeneity issues related to the relationship between both concentration and efficiency and financial performance, we conducted a Hausman test for each model in Table S8 that includes our profitability measures (ROA, ROE, and C/I) and reported the endogeneity estimates. To converse space, we reported only the difference between the coefficients of both regressions, that is, the endogeneity bias estimates from the Hausman test outputs, along with the related statistics (Table S9 ). The results for the Hausman test fail to reject the “null hypothesis” that efficiency is exogenous. Moreover, our instrument passed the “Stock and Yogo (2005)” test for weak instruments, indicating its validity and reliability in the instrumental variables (IV) analysis.

Discussions and conclusions

Numerous studies have examined the influence of market concentration and efficiency on the financial stability of banks. However, no econometric study has been undertaken to examine how market concentration and efficiency, both individually and jointly, affect the performance of banking sector in the MENA region. Our study is pioneering in distinguishing between the Islamic and conventional banking systems co-existing in the MENA region. We have discovered that concentrated banks and those with improved efficiency demonstrate better financial stability during the SAR-COV-2 pandemic.

Using a comprehensive dataset of 575 banks spanning 20 countries in the MENA region, this research delves into the effects of market concentration and efficiency on the financial performance and stability of MENA banks. Our findings indicate that, prior to the SAR-COV-2 pandemic, both concentration and efficiency positively influenced the financial performance of banks in the MENA region. Specifically, banks that were more efficient and operated in concentrated markets displayed better profitability and improved cost-effectiveness. During the SAR-COV-2 pandemic, a substantial differential impact of concentration and efficiency on IBs performance is observed. The enhanced performance and stability of IBs during the pandemic can be attributed to the changes in regulations and market conditions in the MENA countries. Moreover, the ‘asset-backed business models” and stronger capitalization have empowered IBs to better withstand the adverse effects of the SAR-COV-2 pandemic.

Our study significantly contributes to the current research landscape by exploring the efficiency-default risk paradigm within the context of Islamic banking. While previous studies have shown that improved efficiency can positively impact financial stability and decrease credit risk for banks (Isnurhadi et al. 2021 ; Mateev et al. 2022b ), we extend their scope by adopting a unique approach that considers both individual and aggregate measures of bank stability and soundness. Our research findings provide strong evidence that, prior to the pandemic, market concentration and efficiency were significant “determinants” of the financial stability of banks in the MENA region. However, during the SAR-COV-2 period, these positive effects were observed exclusively in the sample of IBs. Additionally, we found that less concentrated markets, typically associated with increased market competition, positively moderate the association between bank efficiency and financial stability during the pandemic. These findings have their evidence rooted in the predictions of the “competition-stability” theory and the results of previous empirical studies reporting that competition increases bank stability as it decreases the volume of non-performing loans (Mirzaei et al. 2013 ; González et al. 2017 , Mateev et al. 2022b ).

During the SAR-COV-2 pandemic, both market concentration and efficiency significantly impacted the capital adequacy of banks in the MENA region. Our analysis of different banking systems indicates that, prior to the pandemic, concentration and efficiency did not contribute to improving the capital position of IBs. However, the further consolidation in the Islamic banking market caused by the pandemic has had a positive impact on the capitalization level of these banks. Moreover, the negative impact of non-interest income on capital ratios indicates that banks in the MENA region do not heavily rely on non-interest revenue sources as part of their income diversification strategy during the pandemic. Therefore, our findings do call for adjustment of the current banking models that heavily rely on intermediation and interest-based earnings, especially for CBs. This alteration is not as urgent for Islamic banking institutions in the MENA region, as they entered the global financial crisis in 2020 with better efficiency and higher levels of capitalization compared to their conventional peers (Mirzaei et al. 2024 ).

Policy implications

Bank managers, policymakers, and regulators in the MENA region should pay attention to the implications of our research. First, bank managers should focus on developing strategies that promote bank efficiency since financial performance is positively associated with the efficiency level of banks. Second, policymakers and regulatory authorities need to establish the necessary support policies to assist Islamic banks in recovering in the post-SAR-COV-2 pandemic. For example, further consolidation in this market may positively influence bank stability and soundness. However, the regulatory institutions should be cautious about implementing such policies, considering their potential adverse impacts on competition, bank customers, and overall stability. Third, decision-makers should require managers to take a more disciplined approach to lending decisions and mandate the establishment of a sufficient capital conservation buffer to mitigate the impact of liquidity risk during the pandemic. In overall, our evaluations recommend a possible alteration of current banking models that rely on intermediation and interest-based earnings, particularly for CBs. Moreover, it is imperative for IBs to consider the use of non-interest-bearing revenue streams as a significant component of their risk diversification plans in the post-SAR-COV-2 period. These recommendations may serve as valuable guidelines for policymakers and governing bodies in other nations where Islamic and conventional bank services are offered hand-in-hand during the SAR-COV-2 pandemic.

Limitations and call for future research

Our analysis is constrained by a key limitation related to the fact that the influence of the recent financial crisis was studied over a restricted time frame of two years. Therefore, further investigation of the SAR-COV-2 effects on bank performance will require an extended period of analysis including the year 2022. This study provides recommendations for future research in this field, proposing several potential avenues for discovery. First, there is a need to explore the influence of additional moderating factors beyond concentration. Future research may delve into the impact of other variables, such as ownership concentration, market size, and liquidity as these may also significantly influence the relationship between efficiency and bank performance. Second, to achieve a more comprehensive understanding of this relationship from a global perspective, future studies may consider conducting similar research on different regions with the prevailing presence of Islamic banking.

Data availability

The datasets generated during and/or analyzed during the current study are available from the corresponding author upon reasonable request.

While in the pre-pandemic period, “Islamic banks show abnormal return performance, as compared to their conventional counterparts, with lower systemic risk”, during the pandemic there is “insignificant differences in exposure to systemic risk vulnerabilities of conventional and Islamic banks, irrespective of the differences in business models, during an exogenous shock” (Rizwan et al. 2022 , p. 3).

The IFSB’ Islamic Financial Services Industry’s Stability Report ( 2022 ) notes that the enforcement of SAR-COV-2 policies has played a significant role in mitigating the perceived risks of economic and financial crises. These policies have also supported economies, helped to contain financial stability risks, and ensured the resilience of financial systems.

A recent study on the MENA region reported that “the oil exporting economies will be the biggest hit due to fall in crude oil prices, creating a fiscal ripple effect by reducing the private consumption expenditure and reduction in energy investments” (Hassan et al., 2021 , 53).

Few more papers (see e.g., Abdulla and Ebrahim, 2022 ; Ashraf et al., 2022 ) with a specific focus on the Gulf Cooperation Council (GCC) reported that banks in the GCC region are negatively affected by the pandemic; however, IBs perform better than CBs do. Moreover, the current research on IBs advises that in order for these banks to “preserve their performance and remain resilient in the aftermath of the SAR-COV-2 pandemic”, they need to “reduce their inputs so that their efficiency can remain unchanged” (Boubaker et al., 2023a , p. 1).

Another explanation for the superior performance of IBs could be rooted in the types of loans and deposits they offer compared to their conventional counterparts. Also, we need to consider the fact that IBs and more specifically, Islamic banking in the MENA region, provide a variety of financial products, including Qardh, Zakat, and Waqf, to help mitigate the negative impact of the SAR-COV-2 pandemic.

A two-way panel fixed effects model (Wooldridge, 2021 ) is another method employed in the empirical literature to tackle this issue (the results are available upon request).

In a current research of economic stability effects, Liang et al. ( 2024 ) delve into whether climate policy uncertainty and carbon markets affect economic and financial market stability and elucidate the mechanisms through which such impacts can be manifested. The results indicate that while the influence of climate policy uncertainty on the stability of economic and financial markets is generally mild, it becomes more pronounced under certain conditions, especially in the long-term frequency-domain and right-tailed distributions, particularly before 2020.

The economic literature points to the fact that IBs are trapped in the Murabaha syndrome. Thus, the notion that IBs prioritize profit-loss sharing (Mudharaba or Musharaka) to reduce the negative effects of the economic downturn may be an expectation statement. In contrast, it can be demonstrated that Murabaha (the most popular product in IBs) may be more effective in mitigating the effects of an economic downturn on IBs performance.

Abdallah A, Ismail A (2017) Corporate governance practices, ownership structure, and corporate performance in the GCC countries. J Int Financ Mark Inst Money 46(January 2017):98–115

Article   Google Scholar  

Abdelsalam O, Elnaha M, Ahme H, William J (2022) Asset securitization and bank stability: evidence from different banking systems. Glob Financ J 51(February 2022):100551

Abdulla Y, Ebrahim Y (2022) Effect of COVID-19 on the performance of Islamic and conventional GCC banks. Rev Financ Econ 40(3):239–258

Abedifar P, Molyneux P, Tarazi A (2013) Risk in Islamic banking. Rev Financ 17(6):2035–2096

Abu-Alkheil AM, Khan WA, Khartabiel GM (2017) Do Islamic banks optimally balance the trade-off in capital structure mix? A comparison approach. Q J Financ Account 55(3-4):1–36

Google Scholar  

Agustini M, Viverita V (2012) Factors influencing the profitability of listed Indonesian commercial banks before and during financial global crisis. Indones Cap Mark Rev 4(1):29–20

Alabbad A, Schertler A (2022) COVID-19 and bank performance in dual-banking countries: an empirical analysis. J Bus Econ 92:1511–1557

PubMed   PubMed Central   Google Scholar  

Aliani K, Al-kayed L, Boujlil R (2022) COVID-19 effect on Islamic vs. conventional banks stock prices: case of GCC countries. J Econ Asymmetries 26(November 2022):e00263

Allen F, Babus A, Elena Carletti G (2009) Financial crises: theory and evidence. Annu Rev Financ Econ 1:97–116

Allen F, Gale D (2004) Competition and financial stability. J Money Credit Bank 36(3):453–480

Arellano M, Bond S (1991) Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. Rev Econ Stud 58(2):277–297

Arellano M, Bover O (1995) Another look at the instrumental variable estimation of error-components models. J Econ 68(1):29–51

Ashraf BN, Tabash MI, Hassan MK (2022) Are Islamic banks more resilient to the crises vis-à-vis conventional banks? Evidence from the COVID-19 shock using stock market data. Pac Basin Financ J 73:101774

Assaf A, Berger A, Roman R, Tsionas M (2019) Does efficiency help banks survive and thrive during financial crises? J Bank Financ 106:445–470

Barua B, Barua S (2021) COVID-19 implications for banks: evidence from an emerging economy. SN Bus Econ 1(19):1–28

MathSciNet   Google Scholar  

Beck T, Demirgüç-Kunt A, Merrouche O (2013) Islamic vs. conventional banking: business model, efficiency, and stability. J Bank Financ 37:433–447

Beltratti A, Stulz RM (2012) The credit crisis around the globe: why did some banks perform better? J Financ Econ 105(1):1–17

Bitar M, Pukthuanthong K, Walker T (2020) Efficiency in Islamic vs. conventional banking: the role of capital and liquidity. Global Finance. Glob Financ J 46(November 2020):100487

Bitar M, Saad W, Benlemlih M (2016) Bank risk and performance in the MENA region: the importance of capital requirements. Econ Syst 40:398–421

Blatter M, Fuster A (2022) Scale effects on efficiency and profitability in the Swiss banking sector. Swiss J Econ Stat 158(1):12

Article   PubMed   PubMed Central   Google Scholar  

Blundell RW, Bond SR (1998) Initial conditions and moment restrictions in dynamic panel data models. J Econ 87:115–143

Boubaker S, Le TDQ, Ngo T (2023a) Managing bank performance under COVID-19: a novel inverse DEA efficiency approach. Int Trans Oper Res 30(5):2436–245

Ben Khediri K, Charfeddine L, Ben Youssef S (2015) Islamic versus conventional banks in the GCC countries: a comparative study using classification techniques. Res Int Bus Financ 33(C):75–98

Boubaker S, Uddin MH, Kabir SH, Mollah S (2023) Does cost inefficiency in Islamic banking matter for earnings uncertainty? Rev Account Financ 22(1):1–36

Bourke P (1989) Concentration and other determinants of bank profitability in Europe, North America and Australia. J Bank Financ 13(1):65–79

Boyd JH, De Nicolo G (2005) The theory of bank risk-taking and competition revisited. J Financ 60(3):1329–1343

Brown K, Hassan MK, Skully M (2007) Operational efficiency and performance of Islamic banks. In Hassa, MK and Lewis, L (ed) Handbook of Islamic Banking, Edward Elgar Publishing Company, Cheltenham, p 1–23

Carletti E, Claessens S, Fatás A, Vives X (2020) The Bank business model in the post‑COVID-19 world. Centre for Economic Policy Research, CEPR Press, London

Chaffai M, Hassan MK (2019) Technology gap and managerial efficiency: a comparison between Islamic and conventional banks in MENA. J Product Anal 51(1):39–53

Charnes A, Cooper WW, Rhodes E (1978) Measuring the efficiency of decision-making units. Eur J Oper Res 2(6):429–444

Article   MathSciNet   Google Scholar  

Colak G, Öztekin O (2021) The impact of COVID-19 pandemic on bank lending around the world. J Bank Financ 133(December 2021):106207

Cristian E, Leonarsan W, Kim SS (2020) The impacts of competition, efficiency, and risk towards bank’s performance in Indonesia. J Keuang Perbank 24(4):407–419

Deloitte Insights (2020) COVID-19 potential implications for the banking and capital market sector. Deloitte Center for Financial Services. Available via https://www2.deloitte.com/content/dam/insights/us/articles/6693_COVID-19-banking/DI_COVID-19-banking.pdf . Accessed 15 Mar 2022

Demirgüç-Kunt A, Huizinga H (2010) Bank activity and funding strategies: the impact on risk and returns. J Financ Econ 98(3):626–650

Demirgüç-Kunt A, Pedraza A, Ruiz-Ortega C (2021) Banking sector performance during the COVID-19 crisis. J Bank Financ 133(December 2021):106305

Demsetz H (1973) Industry structure, market rivalry and public policy. J Law Econ 16:1–10

El-Chaarani H, Ismail TH, El-Abiad Z, El-Deeb MS (2022) The impact of COVID-19 on financial structure and performance of Islamic banks: A comparative study with conventional banks in the GCC countries. J Econ Adm Sci https://doi.org/10.1108/JEAS-07-2021-0138

El-Hawary D, Grais W, Iqbal Z (2004) Regulating Islamic financial institutions: the nature of the regulated. Policy Research Working Paper No.3227. World Bank, Washington, D.C. https://openknowledge.worldbank.org/handle/10986/14732

Fakhri UN, Darmawan A (2021) Comparison of Islamic and conventional banking financial performance during the COVID-19 period. Int J Islam Econ Financ 4(SI):19–40

Farag H, Mallin C, Ow-Yong K (2018) Corporate governance in Islamic banks: new insights for dual board structure and agency relationships. J Int Financ Mark Inst Money 54:59–77

Feyen E, Gispert T, Kliatskova T, Mare D (2021) Financial sector policy response to COVID-19 in emerging markets and developing economies. J Bank Financ 133(December 2021):106184

Flamini V, McDonald C, Schumacher L (2009) The determinants of commercial bank profitability in Sub-Saharan Africa. IMF Working Paper WP/09/15. International Monetary Fund, Washington, DC. https://www.imf.org/external/pubs/ft/wp/2009/wp0915.pdf

García-Herrero A, Gavilá S, Santabárbara D (2009) What explains the low profitability of Chinese banks? J Bank Financ 33(11):2080–2092

Goldberg LG, Rai A (1996) The structure-performance relationship for European banking. J Bank Financ 20(4):745–771

González LO, Razia A, Búa MV, Sestayo RL (2017) Competition, concentration and risk-taking in Banking sector of MENA countries. Res Int Bus Financ 42:591–604

Grassa R, Sarea A, El-Halaby S, Damak AN (2022) Between two crises: do Islamic banks suffer? J Islam Moneta Econ Financ 8(2):25–274

Hamadi H, Awdeh A (2020) Banking concentration and financial development in the MENA region. Int J Islam Middle East Financ Manag 13(4):675–689

Hamza H, Kachtouli S (2014) Competitive conditions and market power of Islamic and conventional commercial banks. J Islam Acc Bus Res 5(1):29–46

Hassan MK, Rabbani MR, Ali MA (2020) Challenges for the Islamic Finance and banking in post COVID era and the role of Fintech. J Econ Coop Dev 43(3):93–116

Hassan MK, Rabbani MR, Yomna Abdulla Y (2021) Socioeconomic impact of COVID-19 in MENA region and the role of Islamic finance. Int J Islam Econ Financ 4(1):51–78

Hellmann TF, Murdock K, Stiglitz J (2000) Liberalization, moral hazard in banking and prudential regulation: are capital requirements enough? Am Econ Rev 90(1):147–165

IFSB (2022) Islamic Financial Services Industry’s Stability Report. Kuala Lumpur, Malaysia, June 2022. https://www.ifsb.org/publication-document/islamic-financial-services-industry-stability-report-2022 . Accessed 20 Feb 2022

Islamic Finance Development Report (2022) Embracing Change. ICD—Refinitiv. https://icd-ps.org/uploads/files/ICD%20Refinitiv%20ifdi-report-20221669878247_1582.pdf . Accessed 20 Dec 2022

Islamic Finance Outlook (2022) Islamic Finance 2021-2022: Toward Sustainable Growth. S&P Global Ratings. https://www.spglobal.com/ratings/en/research/pdf-articles/islamic-finance-outlook-2022-28102022v1.pdf . Accessed 20 Dec 2022

Isnurhadi I, Adam M, Sulastri S, Andriana I, Muizzuddin M (2021) Bank capital, efficiency, and risk: evidence from Islamic banks. J Asian Financ Econ Bus 8(1):841–850

Issa A, Sahyouni A, Mateev M (2024) A path to success: educational board diversity and its influence on MENA banks’ efficiency and stability. Corporate Governance. https://doi.org/10.1108/cg-08-2023-0339

Kabir Md N, Worthington AC (2017) The ‘competition-stability/fragility’ nexus: a comparative analysis of Islamic and conventional banks. Int Rev Financ Anal 50(C):111–128

Keeley M (1990) Deposit insurance, risk and market power in banking. Am Econ Rev 80(5):1183–1200

Kocisova K (2015) Banking stability index: A cross-country Study. In: Proceedings of the International Conference of Finance and Banking Proceedings, Prague, Czech Republic, October 13–14. http://icfb2015.cms.opf.slu.cz/sites/icfb.rs.opf.slu.cz/files/kocisova.pdf

Kosmidou K (2008) The Determinants of banks’ profits in Greece during the period of EU financial integration. Manag Financ 34:146–159

Kozak S (2021) The impact of COVID-19 on bank equity and performance: the case of Central Eastern South European countries. Sustainability 13:11036

Article   CAS   Google Scholar  

Kozak S, Wierzbowska A (2021) Banking market concentration and bank efficiency. evidence from Southern, Eastern and Central Europe. Southeast Eur J Econ Bus 16(1):38–52

Le TD, Ho TH, Nguyen DT, Ngo T (2022) A cross-country analysis on diversification, Sukuk investment, and the performance of Islamic banking systems under the COVID-19 pandemic. Heliyon 8(3):e09106

Leon F (2015) Measuring competition in banking: a critical review of methods. Working Paper 201412, CERDI-Centre d'Études et de Recherches sur le Développement International. https://shs.hal.science/halshs-01015794v2/document

Lepetit L, Strobel F (2013) Bank insolvency risk and time-varying Z-score measures. J Int Financ Mark Inst Money 25:73–87

Li X, Feng H, Zhao S, Carter DA (2021) The effect of revenue diversification on bank profitability and risk during the COVID-19 pandemic. Financ Res Lett 43(November 2021):101957

Liang C, Goodell J, Li X (2024) Impacts of carbon market and climate policy uncertainties on financial stability: evidence from connectedness network analysis. J Int Financ Mark Inst Money 92(April 2024):101977

Mallin C, Farag H, Ow-Yong K (2014) Corporate social responsibility and financial performance in Islamic banks. J Econ Behav Organ 103(S):21–38

Mansour W, Ajmi H, Saci K (2022) Regulatory policies in the global Islamic banking sector in the outbreak of COVID-19 pandemic. J Bank Regul 23(3):265–287

Marcus AJ (1984) Deregulation and bank financial policy. J Bank Financ 8(4):557–565

Mateev M, Moudud-Ul-Huq S, Sahyouni A, Tariq M (2022a) Capital regulation, competition and risk-taking: policy implications for banking sector stability in the MENA region. Res Int Bus Financ 60(April 2022):101579

Mateev M, Sahyouni A, Al-Masaeid T (2022b) Bank performance before and during the COVID-19 crisis: does efficiency play a role? Review of Managerial. Science 18:29–82

Mateev M, Tariq MU, Sahyouni A (2023) Efficiency, market concentration and the impact of COVID-19 pandemic: evidence from the MENA region. Plos ONE 18(5):e0285403

Article   CAS   PubMed   PubMed Central   Google Scholar  

Md. Noman AH, Sok GC, Che R (2017) Does competition improve financial stability of the banking sector in ASEAN countries? An empirical analysis. PLoS ONE 12(5):e0176546

Miklaszewska E, Kil K, Idzik M (2021) How the COVID-19 pandemic affects bank risks and returns: Evidence from EU members in Central, Eastern, and Northern Europe. Risks 9(10):180. https://doi.org/10.3390/risks9100180

Mirzaei A, Moore T, Liu G (2013) Does market structure matter on banks’ profitability and stability? Emerging vs. advanced economies. J Bank Financ 37:2920–2937

Mirzaei A, Saad M, Emrouznejad A (2024) Bank stock performance during the COVID-19 crisis: does efficiency explain why Islamic banks fared relatively better? Ann Oper Res 334(1):317–355

Molyneux P, Forbes W (1995) Market structure and performance in European banking. Appl Econ 27(2):155–159

Molyneux P, Thornton J (1992) Determinants of European bank profitability: a note. J Bank Financ 16(6):1173–1178

Moudud-Ul-Huq S, Halim MA, Biswas T (2020) Competition and profitability of banks: empirical evidence from the Middle East & North African (MENA) countries. J Bus Adm Res 3(2):26–37

Neto JFDS (2021) Essays on the European banks’ financial stability, profitability, and efficiency. Dissertation. Universidade de Santiago de Compostela, Escola de Doutoramento Internacional (EDIUS). http://hdl.handle.net/10347/27260

Nguyen J (2012) The relationship between net interest margin and non-interest income using a system estimation approach. J Bank Financ 36:2429–2437

Otero L, Razia A, Cunill OM, Mulet-Forteza C (2020) What determines efficiency in MENA banks? J Bus Res 112:331–341

Pasiouras F (2008) International evidence on the impact of regulations and supervision on banks’ technical efficiency: an application of two-stage data envelopment analysis. Rev Quant Financ Account 30(2):187–223

Rakshit B, Bardhan S (2022) An empirical investigation of the effects of competition, efficiency and risk-taking on profitability: an application in Indian banking. J Econ Bus 118(C):106022

Rashid A, Jabeen S (2016) Analyzing performance determinants: conventional versus Islamic banks in Pakistan. Borsa Istanb Rev 16(2):92–107

Rizwan MS, Ahmad G, Ashraf D (2022) Systemic risk, Islamic banks, and the COVID-19 pandemic: An empirical investigation. Emerg Mark Rev 51(3):100890

Roy AD (1952) Safety first and the holding of assets. Econometrica 20(3):431–449

S&P Global Ratings (2022) Islamic Finance Outlook 2022 Edition, Islamic Finance 2021-2022 Toward Sustainable Growth. https://www.spglobal.com/ratings/en/research/pdf-articles/islamic-finance-outlook-2022-28102022v1.pdf . Accessed 12 Dec 2022

Saeed M, Izzeldin M (2016) Examining the relationship between default risk and efficiency in Islamic and conventional banks. J Econ Behav Organ 132(S):127–154

Sarsour S, Daoud Y (2015) The efficiency of the banking system in occupied Palestinian Territory (OPT) 2000–2009. Rev Middle East Econ Financ 11(1):55–77

Shawtari F, Ariff M, Razak AS (2019) Efficiency and bank margins: a comparative analysis of Islamic and conventional banks in Yemen. J Islam Acc Bus Res 10(1):50–72

Sun PH, Mohamad S, Ariff M (2017) Determinants driving bank performance: a comparison of two types of banks in the OIC. Pac Basin Financ J 42:193–203

Syed MH, Khan S, Rabbani MR, Thalassinos YE (2020) An artificial intelligence and NLP based Islamic FinTech model combining zakat and Qardh-Al-Hasan for countering the adverse impact of COVID 19 on SMEs and individuals. Int J Econ Bus Adm 8(2):351–364

Tan YA, Floros C, Anchor JR (2017) The profitability of Chinese banks: impacts of risk, competition, and efficiency. Rev Account Financ 16(1):86–105

Viphindrartin S, Wilantari RN, Bawono S (2022) The comparison of the Islamic and conventional bank performance before and during COVID-19 pandemic in Indonesia. Manaj Bisnis 21(1):76–84

Wooldridge JM (2021) Two-Way Fixed Effects, the Two-Way Mundlak Regression, and Difference-in-Differences Estimators. Working paper (August 17, 2021), Michigan State University. https://ssrn.com/abstract=3906345 or https://doi.org/10.2139/ssrn.3906345

Xie H, Hsu-Ling C, Hafeez M, Saliba C (2021) COVID-19 post-implications for sustainable banking sector performance: evidence from emerging Asian economies. Econ Res 35(1):4801–4816

Yeddou N (2023) Ownership structure and bank performance: the impact of market competition. Appl Econ https://doi.org/10.1080/00036846.2023.2267204

Yilmaz A, Gunes N (2015) Efficiency comparison of participation and conventional banking sectors in Turkey between 2007–2013. Proc Soc Behav Sci 195:383–392

Download references

Author information

Authors and affiliations.

Abu Dhabi School of Management, Abu Dhabi, United Arab Emirates

Miroslav Mateev & Tarek Nasr

Abu Dhabi University, Abu Dhabi, United Arab Emirates

You can also search for this author in PubMed   Google Scholar

Contributions

MM: Conceptualization, Methodology, Formal analysis, Data processing, Writing-original draft, Writing- review &editing. TN: Conceptualization, Methodology, Formal analysis, and Data curation; Writing—review & editing. KN: Formal analysis and Data curation, Writing—review & editing, Validation; Visualization. All authors contributed significantly to this article and approved the submitted version.

Corresponding author

Correspondence to Miroslav Mateev .

Ethics declarations

Competing interests.

The authors declare no competing interests.

Ethical approval

This article does not contain any studies with human participants performed by any of the authors.

Informed consent

Additional information.

Publisher’s note Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Supplementary information

Supplementary table, rights and permissions.

Open Access This article is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License, which permits any non-commercial use, sharing, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons licence, and indicate if you modified the licensed material. You do not have permission under this licence to share adapted material derived from this article or parts of it. The images or other third party material in this article are included in the article’s Creative Commons licence, unless indicated otherwise in a credit line to the material. If material is not included in the article’s Creative Commons licence and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder. To view a copy of this licence, visit http://creativecommons.org/licenses/by-nc-nd/4.0/ .

Reprints and permissions

About this article

Cite this article.

Mateev, M., Nasr, T. & Nair, K. Navigating crisis: marketing dynamics and resilience in the MENA’s dual-banking system amidst the SAR-COV-2 pandemic. Humanit Soc Sci Commun 11 , 1248 (2024). https://doi.org/10.1057/s41599-024-03675-1

Download citation

Received : 04 February 2024

Accepted : 14 August 2024

Published : 20 September 2024

DOI : https://doi.org/10.1057/s41599-024-03675-1

Share this article

Anyone you share the following link with will be able to read this content:

Sorry, a shareable link is not currently available for this article.

Provided by the Springer Nature SharedIt content-sharing initiative

Quick links

• Explore articles by subject
• Guide to authors
• Editorial policies

Corporate sustainability research in marketing: Mapping progress and broadening our perspective

• Original Empirical Research
• Published: 20 September 2024

Cite this article

• Youngtak M. Kim 1 ,
• Neil T. Bendle 2 ,
• John Hulland 2 &
• Michael D. Pfarrer 2  

This review examines corporate sustainability research in marketing, using a perspective that encompasses the environmental and social, as well as economic, aspects of firm performance (i.e., the “Triple Bottom Line”). The authors describe major trends in the strategy-level corporate sustainability literature over several generations. Prior research has mostly focused on the organizational level, noting how firms have engaged with sustainability, while largely ignoring markets and the global economic system. Trends in economic, environmental, and social focus are highlighted, with environmental issues being of relatively greater importance in the nascent stages of corporate sustainability research. However, a growing preference for economic and social issues is observed over time. More recent research examines the tension between sustainability and profitability, examining potential trade-offs between bottom line financial results and achieving the sustainability goals of social and environmental progress. The paper concludes with an agenda for future research in strategic marketing sustainability.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Subscribe and save.

• Get 10 units per month
• Download Article/Chapter or eBook
• 1 Unit = 1 Article or 1 Chapter
• Cancel anytime

Price includes VAT (Russian Federation)

Instant access to the full article PDF.

Rent this article via DeepDyve

Institutional subscriptions

Similar content being viewed by others

Sustainability marketing commitment: empirical insights about its drivers at the corporate and functional level of marketing, strategic marketing, sustainability, the triple bottom line, and resource-advantage (r-a) theory: securing the foundations of strategic marketing theory and research.

Sustainability in marketing: a systematic review unifying 20 years of theoretical and substantive contributions (1997–2016)

Explore related subjects.

• Artificial Intelligence
• Medical Ethics

Aguinis, H., & Glavas, A. (2012). What we know and don’t know about corporate social responsibility: A review and research agenda. Journal of Management., 38 (4), 932–968.

Article   Google Scholar  

Aguinis, H., & Glavas, A. (2019). On corporate social responsibility, sensemaking, and the search for meaningfulness through work. Journal of Management, 45 (3), 1057–1086.

Ailawadi, K. L., Neslin, S. A., Luan, Y. J., & Taylor, G. A. (2014). Does retailer CSR enhance behavioral loyalty? A case for benefit segmentation. International Journal of Research in Marketing., 31 (2), 156–167.

Aksoy, L., Banda, S., Harmeling, C., Keiningham, T. L., & Pansari, A. (2022). Marketing’s role in multi-stakeholder engagement. International Journal of Research in Marketing., 39 (2), 445–461.

Allen, C. T. (1982). Self-perception based strategies for stimulating energy conservation. Journal of Consumer Research., 8 (4), 381–390.

Auger, P., Devinney, T. M., Louviere, J. J., & Burke, P. F. (2008). Do social product features have value to consumers? International Journal of Research in Marketing., 25 (3), 183–191.

Baker, W. E., & Sinkula, J. M. (2005). Environmental marketing strategy and firm performance: Effects on new product performance and market share. Journal of the Academy of Marketing Science., 33 (4), 461–475.

Ballings, M., McCullough, H., & Bharadwaj, N. (2018). Cause marketing and customer profitability. Journal of the Academy of Marketing Science., 46 (2), 234–251.

Banerjee, S. B., Iyer, E. S., & Kashyap, R. K. (2003). Corporate environmentalism: Antecedents and influence of industry type. Journal of Marketing., 67 (2), 106–122.

Bansal, P. (2005). Evolving sustainably: A longitudinal study of corporate sustainable development. Strategic Management Journal., 26 (3), 197–218.

Bansal, P., & DesJardine, M. (2015). Don’t Confuse Sustainability with CSR. Ivey Business Journal . Available at: https://iveybusinessjournal.com/dont-confuse-sustainability-with-csr/ .

Barone, M. J., Miyazaki, A. D., & Taylor, K. A. (2000). The influence of cause-related marketing on consumer choice: Does one good turn deserve another? Journal of the Academy of Marketing Science., 28 (2), 248–262.

Barone, M. J., Norman, A. T., & Miyazaki, A. D. (2007). Consumer response to retailer use of cause-related marketing: Is more fit better? Journal of Retailing., 83 (4), 437–445.

Bendle, N., & Wang, S. (2023). The Customer Asset Understanding and Managing Its Value. Palgrave Macmillan Cham.

Bendle, N. T., & Butt, M. N. (2018). The Misuse of Accounting-Based Approximations of Tobin’s q in a World of Market-Based Assets. Marketing Science, 37 (3), 333–506.

Berens, G., Van Riel, C. B., & Van Bruggen, G. H. (2005). Corporate associations and consumer product responses: The moderating role of corporate brand dominance. Journal of Marketing., 69 (3), 35–48.

Bezawada, R., & Pauwels, K. (2013). What is special about marketing organic products? How organic assortment, price, and promotions drive retailer performance. Journal of Marketing., 77 (1), 31–51.

Bhagwat, Y., Warren, N. L., Beck, J. T., & Watson, G. F., IV. (2020). Corporate sociopolitical activism and firm value. Journal of Marketing., 84 (5), 1–21.

Blocker, C. P., Cannon, J. P., & Zhang, J. Z. (2024). Purpose orientation: An emerging theory transforming business for a better world. Journal of the Academy of Marketing Science. 1–27. https://doi.org/10.1007/s11747-023-00989-5

Bolton, L. E., & Mattila, A. S. (2015). How does corporate social responsibility affect consumer response to service failure in buyer–seller relationships? Journal of Retailing., 91 (1), 140–153.

Bowen, H. R. (1953). Social responsibilities of the businessman New York: Harper & Row.

Bradford, A. (2020). The Brussels Effect: How the European Union Rules the World . Oxford University Press.

Book   Google Scholar  

Brown, T. J., & Dacin, P. A. (1997). The company and the product: Corporate associations and consumer product responses. Journal of Marketing., 61 (1), 68–84.

Carroll, A. B. (1979). A three-dimensional conceptual model of corporate performance. Academy of Management Review, 4 (4), 497–505.

Carroll, A. B. (2008). A history of corporate social responsibility. In Andrew Crane, Dirk Matten, Abagail McWilliams, Jeremy Moon, & D. S. Siegel (Eds.), The Oxford handbook of corporate social responsibility (pp. 19–46). New York: Oxford University Press.

Chabowski, B. R., Mena, J. A., & Gonzalez-Padron, T. L. (2011). The structure of sustainability research in marketing, 1958–2008: A basis for future research opportunities. Journal of the Academy of Marketing Science., 39 (1), 55–70.

Chandy, R. K., Johar, G. V., Moorman, C., & Roberts, J. H. (2021). Better marketing for a better world. Journal of Marketing., 85 (3), 1–9.

Chintagunta, P. K., & Desai, P. S. (2011). Introduction to the special issue on marketing within the enterprise and beyond. Management Science., 57 (9), 1511.

Choi, S., Duhan, D. F., & Dass, M. (2023). The influence of corporate social responsibility appeals (CSRAs) on product sales: Which appeal types perform better? Journal of Retailing., 99 (1), 115–135.

Clark, G. L., Feiner, A., & Viehs, M. (2015). From the stockholder to the stakeholder: How sustainability can drive financial outperformance. Social Science Research Network, Retrieved from https://ssrn.com/abstract=2508281 .

Closs, D. J., Speier, C., & Meacham, N. (2011). Sustainability to support end-to-end value chains: The role of supply chain management. Journal of the Academy of Marketing Science., 39 (1), 101–116.

Connelly, B. L., Ketchen, D. J., & Slater, S. F. (2011). Toward a “theoretical toolbox” for sustainability research in marketing. Journal of the Academy of Marketing Science., 39 (1), 86–100.

Crittenden, V. L., Crittenden, W. F., Ferrell, L. K., Ferrell, O. C., & Pinney, C. C. (2011). Market-oriented sustainability: A conceptual framework and propositions. Journal of the Academy of Marketing Science., 39 (1), 71–85.

Cronin, J. J., Smith, J. S., Gleim, M. R., Ramirez, E., & Martinez, J. D. (2011). Green marketing strategies: An examination of stakeholders and the opportunities they present. Journal of the Academy of Marketing Science., 39 (1), 158–174.

Davis, K. (1960). Can business afford to ignore social responsibilities? California Management Review., 2 (3), 70–76.

de Ruyter, K., Keeling, D. I., Plangger, K., Montecchi, M., Scott, M. L., & Dahl, D. W. (2022). Reimagining marketing strategy: Driving the debate on grand challenges. Journal of the Academy of Marketing Science., 50 (1), 13–21.

Drumwright, M. E. (1994). Socially responsible organizational buying: Environmental concern as a noneconomic buying criterion. Journal of Marketing., 58 (3), 1–19.

Drumwright, M. E. (1996). Company advertising with a social dimension: The role of noneconomic criteria. Journal of Marketing., 60 (4), 71–87.

Du, S., Bhattacharya, C. B., & Sen, S. (2007). Reaping relational rewards from corporate social responsibility: The role of competitive positioning. International Journal of Research in Marketing., 24 (3), 224–241.

Du, S., Bhattacharya, C. B., & Sen, S. (2011). Corporate social responsibility and competitive advantage: Overcoming the trust barrier. Management Science., 57 (9), 1528–1545.

Elkington, J. (2018). 25 years ago I coined the phrase “Triple Bottom Line”. Here’s why it’s time to rethink it. Harvard Business Review., 25 , 2–5.

Google Scholar  

Elkington, J. (1997). Cannibals with forks: The triple bottom line of twenty-first century business Mankato. MN: Capstone.

Ellen, P. S., Webb, D. J., & Mohr, L. A. (2006). Building corporate associations: Consumer attributions for corporate socially responsible programs. Journal of the Academy of Marketing Science., 34 (2), 147–157.

European Commission. (2023). Corporate sustainability reporting. Retrieved from https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/company-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en .

Fatima, T., & Elbanna, S. (2023). Corporate social responsibility (CSR) implementation: A review and a research agenda towards an integrative framework. Journal of Business Ethics., 183 (1), 105–121.

Ferrell, O. C., & Gresham, L. G. (1985). A contingency framework for understanding ethical decision making in marketing. Journal of Marketing., 49 (3), 87–96.

Ferrell, O. C., & Weaver, K. M. (1978). Ethical beliefs of marketing managers: What they say they believe and do, compared with their perceptions of peers and top management. Journal of Marketing., 42 (3), 69–73.

Fincham, A. (2019). Cadbury’s ethics and the spirit of corporate social responsibility. In N. Burton & R. Turnbull (Eds.), Quakers, business and corporate responsibility: Lessons and cases for responsible management (pp. 41–58). Springer.

Chapter   Google Scholar  

Freeman, R. E., Harrison, J. S., Wicks, A. C., et al. (2010). Stakeholder Theory: The State of the Art . Cambridge University Press.

Friske, W., Hoelscher, S. A., & Nikolov, A. N. (2023). The impact of voluntary sustainability reporting on firm value: Insights from signaling theory. Journal of the Academy of Marketing Science., 51 (2), 372–392.

Gershoff, A. D., & Frels, J. K. (2015). What makes it green? The role of centrality of green attributes in evaluations of the greenness of products. Journal of Marketing., 79 (1), 97–110.

Gielens, K., Geyskens, I., Deleersnyder, B., & Nohe, M. (2018). The new regulator in town: The effect of Walmart’s sustainability mandate on supplier shareholder value. Journal of Marketing., 82 (2), 124–141.

Groening, C., Mittal, V., & Zhang, Y. A. (2016). Cross-validation of customer and employee signals and firm valuation. Journal of Marketing Research., 53 (1), 61–76.

Haenlein, M., Bitner, M. J., Kohli, A. K., Lemon, K. N., & Reibstein, D. J. (2022). Guest editorial: Responsible research in marketing. Journal of the Academy of Marketing Science., 50 (1), 8–12.

Handelman, J. M., & Arnold, S. J. (1999). The role of marketing actions with a social dimension: Appeals to the institutional environment. Journal of Marketing., 63 (3), 33–48.

Hart, S. L. (1995). A natural-resource-based view of the firm. Academy of Management Review., 20 (4), 986–1014.

Henion, K. E. (1972). The effect of ecologically relevant information on detergent sales. Journal of Marketing Research., 9 (1), 10–14.

Homburg, C., Stierl, M., & Bornemann, T. (2013). Corporate social responsibility in business-to-business markets: How organizational customers account for supplier corporate social responsibility engagement. Journal of Marketing., 77 (6), 54–72.

Huang, M.-H., & Rust, R. T. (2011). Sustainability and consumption. Journal of the Academy of Marketing Science., 39 (1), 40–54.

Hubbard, G. (2009). Measuring organizational performance: Beyond the triple bottom line. Business Strategy and the Environment., 18 (3), 177–191.

Hult, G. T. M. (2011). Market-focused sustainability: Market orientation plus! Journal of the Academy of Marketing Science., 39 (1), 1–6.

Hunt, S. D., Wood, V. R., & Chonko, L. B. (1989). Corporate ethical values and organizational commitment in marketing. Journal of Marketing., 53 (3), 79–90.

Hutton, R. B., & McNeill, D. L. (1981). The value of incentives in stimulating energy conservation. Journal of Consumer Research., 8 (3), 291–298.

Hydock, C., Paharia, N., & Weber, T. J. (2019). The Consumer Response to Corporate Political Advocacy: Review and Directions. Customer Needs and Solutions, 6 , 76–83.

Hydock, C., Paharia, N., & Blair, S. (2020). Should your brand pick a side? How market share determines the impact of corporate political advocacy. Journal of Marketing Research., 57 (6), 1135–1151.

IFRS. (2023). International sustainability standards board. Retrieved from https://www.ifrs.org/groups/international-sustainability-standards-board/ .

Janani, S., Christopher, R. M., Nikolov, A. N., & Wiles, M. A. (2022). Marketing experience of CEOs and corporate social performance. Journal of the Academy of Marketing Science, 50 (3), 460–481.

Jayachandran, S., Kalaignanam, K., & Eilert, M. (2013). Product and environmental social performance: Varying effect on firm performance. Strategic Management Journal., 34 (10), 1255–1264.

Kang, C., Germann, F., & Grewal, R. (2016). Washing away your sins? Corporate social responsibility, corporate social irresponsibility, and firm performance. Journal of Marketing., 80 (2), 59–79.

Kassarjian, H. H. (1971). Incorporating ecology into marketing strategy: The case of air pollution. Journal of Marketing., 35 (3), 61–65.

Katsikeas, C. S., Leonidou, C. N., & Zeriti, A. (2016a). Eco-friendly product development strategy: Antecedents, outcomes, and contingent effects. Journal of the Academy of Marketing Science., 44 (6), 660–684.

Katsikeas, C. S., Morgan, N. A., Leonidou, L. C., & Hult, G. T. M. (2016b). Assessing Performance Outcomes in Marketing. Journal of Marketing., 80 (2), 1–20.

Kelly, E. J. (1971). Marketing’s changing social/environmental role. Journal of Marketing., 35 (3), 1–2.

Kinnear, T. C., & Taylor, J. R. (1973). The effect of ecological concern on brand perceptions. Journal of Marketing Research., 10 (2), 191–197.

Klein, J., & Dawar, N. (2004). Corporate social responsibility and consumers’ attributions and brand evaluations in a product–harm crisis. International Journal of Research in Marketing., 21 (3), 203–217.

Korschun, D., Bhattacharya, C. B., & Swain, S. D. (2014). Corporate social responsibility, customer orientation, and the job performance of frontline employees. Journal of Marketing., 78 (3), 20–37.

Koschate-Fischer, N., Stefan, I. V., & Hoyer, W. D. (2012). Willingness to pay for cause-related marketing: The impact of donation amount and moderating effects. Journal of Marketing Research., 49 (6), 910–927.

Kotler, P. (2011). Reinventing marketing to manage the environmental imperative. Journal of Marketing., 75 (4), 132–135.

Kotler, P., & Lee, N. (2005). Best of breed: When it comes to gaining a market edge while supporting a social cause, “corporate social marketing” leads the pack. Social Marketing Quarterly., 11 (3–4), 91–103.

Kotler, P., & Levy, S. J. (1969). Broadening the concept of marketing. Journal of Marketing., 33 (1), 10–15.

Kotler, P., & Zaltman, G. (1971). Social marketing: An approach to planned social change. Journal of Marketing., 35 (3), 3–12.

Krishna, A., & Rajan, U. (2009). Cause marketing: Spillover effects of cause-related products in a product portfolio. Management Science., 55 (9), 1469–1485.

Lenz, I., Wetzel, H. A., & Hammerschmidt, M. (2017). Can doing good lead to doing poorly? Firm value implications of CSR in the face of CSI. Journal of the Academy of Marketing Science., 45 (5), 677–697.

Leonidou, C. N., Katsikeas, C. S., & Morgan, N. A. (2013). “Greening” the marketing mix: Do firms do it and does it pay off? Journal of the Academy of Marketing Science., 41 (2), 151–170.

Levy, S. J., & Kotler, P. (1979). Toward a broader concept of marketing’s role in social order. Journal of the Academy of Marketing Science., 7 (2), 233–238.

Lichtenstein, D. R., Drumwright, M. E., & Braig, B. M. (2004). The effect of corporate social responsibility on customer donations to corporate-supported nonprofits. Journal of Marketing., 68 (4), 16–32.

Lin, Y.-C., & Chang, C.-C.A. (2012). Double standard: The role of environmental consciousness in green product usage. Journal of Marketing., 76 (5), 125–134.

List, J. A., & Momeni, F. (2021). When corporate social responsibility backfires: Evidence from a natural field experiment. Management Science, 67 (1), 8–21.

Luchs, M. G., Naylor, R. W., Irwin, J. R., & Raghunathan, R. (2010). The sustainability liability: Potential negative effects of ethicality on product preference. Journal of Marketing., 74 (5), 18–31.

Luo, X., & Bhattacharya, C. B. (2006). Corporate social responsibility, customer satisfaction, and market value. Journal of Marketing., 70 (4), 1–18.

Luo, X., & Bhattacharya, C. B. (2009). The debate over doing good: Corporate social performance, strategic marketing levers, and firm-idiosyncratic risk. Journal of Marketing., 73 (6), 198–213.

Maignan, I., & Ferrell, O. C. (2004). Corporate social responsibility and marketing: An integrative framework. Journal of the Academy of Marketing Science., 32 (1), 3–19.

Maignan, I., Ferrell, O. C., & Hult, G. T. M. (1999). Corporate citizenship: Cultural antecedents and business benefits. Journal of the Academy of Marketing Science., 27 (4), 455–469.

Malshe A, Yin Y, Colicev A, et al. (2024). How ESG Reduces Risk: The Role of Consumers and Institutional Investors. Retrieved from https://ssrn.com/abstract=4410032 .

Margolis, J. D., Elfenbein, H. A., & Walsh, J. P. (2009). Does it pay to be good... And does it matter? A meta-analysis of the relationship between corporate social and financial performance. Retrieved from https://ssrn.com/abstract=1866371 .

MASB. (2023). Greenwashing. Universal Marketing Dictionary Project, Retrieved from https://marketing-dictionary.org/g/green-marketing/ .

McWilliams, A., Siegel, D. S., & Wright, P. M. (2006). Corporate social responsibility: Strategic implications. Journal of Management Studies., 43 (1), 1–18.

Meier, J., & Findley, F. (2023). The Bud Light brand divorce. Retrieved from https://themasb.org/the-bud-light-brand-divorce-a-new-masb-white-paper/ .

Menon, A., & Menon, A. (1997). Enviropreneurial marketing strategy: The emergence of corporate environmentalism as market strategy. Journal of Marketing., 61 (1), 51–67.

Mishra, S., & Modi, S. B. (2016). Corporate social responsibility and shareholder wealth: The role of marketing capability. Journal of Marketing., 80 (1), 26–46.

Mizik, N. (2014). Assessing the total financial performance impact of brand equity with limited time-series data. Journal of Marketing Research, 51 (6), 691–706.

Mizik, N., & Jacobson, R. (2009). Financial markets research in marketing. Journal of Marketing Research, 46 (3), 320–324.

Moorman, C. (2020). Brand Activism in a Political World. Journal of Public Policy & Marketing, 39 (4), 388–392.

Mukherjee, S., & Althuizen, N. (2020). Brand activism: Does courting controversy help or hurt a brand? International Journal of Research in Marketing., 37 (4), 772–788.

Murphy, P. E., Kangun, N., & Locander, W. B. (1978). Environmentally concerned consumers-racial variations: Are middle and upper-class black females as ecologically conscious as their white counterparts? Journal of Marketing., 42 (4), 61–66.

Nenkov GY (2024) Shifting focus in the fight against core environmental challenges. Journal of the Academy of Marketing Science Jan 9th: 1–6. https://doi.org/10.1007/s11747-023-01001-w .

Ngobo, P. V. (2011). What drives household choice of organic products in grocery stores? Journal of Retailing., 87 (1), 90–100.

Nickerson, D., Lowe, M., Pattabhiramaiah, A., & Sorescu, A. (2022). The impact of corporate social responsibility on brand sales: An accountability perspective. Journal of Marketing., 86 (2), 5–28.

Nikolaeva, R., & Bicho, M. (2011). The role of institutional and reputational factors in the voluntary adoption of corporate social responsibility reporting standards. Journal of the Academy of Marketing Science., 39 , 136–157.

Olsen, M. C., Slotegraaf, R. J., & Chandukala, S. R. (2014). Green claims and message frames: How green new products change brand attitude. Journal of Marketing., 78 (5), 119–137.

Olson, E. L. (2013). It’s not easy being green: The effects of attribute tradeoffs on green product preference and choice. Journal of the Academy of Marketing Science., 41 , 171–184.

Orlitzky, M., Schmidt, F. L., & Rynes, S. L. (2003). Corporate social and financial performance: A meta-analysis. Organization Studies., 24 (3), 403–441.

Osterhus, T. L. (1997). Pro-social consumer influence strategies: When and how do they work? Journal of Marketing., 61 (4), 16–29.

Peloza, J., & Shang, J. (2011). How can corporate social responsibility activities create value for stakeholders? A systematic review. Journal of the Academy of Marketing Science., 39 (1), 117–135.

Polman, P., & Winston, A. (2021). Net Positive: How Courageous Companies Thrive by Giving More Than They Take . Harvard Business Review Press.

Porter, M., & Kramer, M. R. (2011). Creating shared value. Harvard Business Review., 89 (1/2), 62–77.

Porter, M., & Van der Linde, C. (1995). Green and competitive: Ending the stalemate. In E. F. M. Wubben (Ed.), The dynamics of the eco-efficient economy: Environmental regulation and competitive advantage (pp. 120–134). Edward Elgar Publishing.

Ramaswamy, V. (2021). Woke Inc: Inside Corporate America’s Social Justice Scam . Center Street.

Robin, D. P., & Reidenbach, R. E. (1987). Social responsibility, ethics, and marketing strategy: Closing the gap between concept and application. Journal of Marketing., 51 (1), 44–58.

Robinson, S. R., Irmak, C., & Jayachandran, S. (2012). Choice of cause in cause-related marketing. Journal of Marketing., 76 (4), 126–139.

Sadovnikova, A., & Pujari, A. (2016). The effect of green partnerships on firm value. Journal of the Academy of Marketing Science., 45 (2), 251–267.

Schamp, C., Heitmann, M., Peers, Y., & Leeflang, P. S. H. (2024). Cause-related marketing as sales promotion. Journal of Marketing Research . https://doi.org/10.1177/00222437231200807

Sen, S., & Bhattacharya, C. B. (2001). Does doing good always lead to doing better? Consumer reactions to corporate social responsibility. Journal of Marketing Research., 38 (2), 225–243.

Sen, S., Bhattacharya, C. B., & Korschun, D. (2006). The role of corporate social responsibility in strengthening multiple stakeholder relationships: A field experiment. Journal of the Academy of Marketing Science., 34 (2), 158–166.

Sharma, A., Borah, S. B., Haque, T., & Adhikary, A. (2024). Engaging customers and suppliers for environmental sustainability: Investigating the drivers and the effects on firm performance.  Journal of the Academy of Marketing Science. 1–26. https://doi.org/10.1007/s11747-023-00995-7

Sheth, J. N., Sethia, N. K., & Srinivas, S. (2011). Mindful consumption: A customer-centric approach to sustainability. Journal of the Academy of Marketing Science., 39 (1), 21–39.

Shrivastava, P. (1995). The role of corporations in achieving ecological sustainability. Academy of Management Review., 20 (4), 936–960.

Simmons, C. J., & Becker-Olsen, K. L. (2006). Achieving marketing objectives through social sponsorships. Journal of Marketing., 70 (4), 154–169.

Stäbler, S., & Fischer, M. (2020). When does corporate social irresponsibility become news? Evidence from more than 1,000 brand transgressions across five countries. Journal of Marketing., 84 (3), 46–67.

Tony’s Chocolonely. (n.d.). Our Mission. Available at: https://tonyschocolonely.com/us/en/our-mission

Tully, S. M., & Winer, R. S. (2014). The role of the beneficiary in willingness to pay for socially responsible products: A meta-analysis. Journal of Retailing., 90 (2), 255–274.

U.S. Business Rountable (2019) Business Roundtable Redefines the Purpose of a Corporation to Promote ‘An Economy That Serves All Americans’. Corporarte Governance . Available at: https://www.businessroundtable.org/business-roundtable-redefines-the-purpose-of-a-corporation-to-promote-an-economy-that-serves-all-americans .

U.S. Securities and Exchange Commission. (2023). Climate-related disclosures/ESG investing. Retrieved from https://www.sec.gov/securities-topics/climate-esg .

Vadakkepatt, G. G., Winterich, K. P., Mittal, V., Zinn, W., Beitelspacher, L., Aloysius, J., Ginger, J., & Reilman, J. (2021). Sustainable retailing. Journal of Retailing., 97 (1), 62–80.

Van Marrewijk, M. (2003). Concepts and definitions of CSR and corporate sustainability: Between agency and communion. Journal of Business Ethics., 44 (2–3), 95–105.

Van Beurden, P., & Gössling, T. (2008). The worth of values–a literature review on the relation between corporate social and financial performance. Journal of Business Ethics., 82 (2), 407–424.

Van Doorn, J., & Verhoef, P. C. (2011). Willingness to pay for organic products: Differences between virtue and vice foods. International Journal of Research in Marketing., 28 (3), 167–180.

Van Doorn, J., & Verhoef, P. C. (2015). Drivers of and barriers to organic purchase behavior. Journal of Retailing., 91 (3), 436–450.

Varadarajan, R. (2017). Innovating for sustainability: A framework for sustainable innovations and a model of sustainable innovations orientation. Journal of the Academy of Marketing Science., 45 (1), 14–36.

Varadarajan, P. R., & Menon, A. (1988). Cause-related marketing: A coalignment of marketing strategy and corporate philanthropy. Journal of Marketing., 52 (3), 58–74.

Vieira, V. A., Wolter, J. S., Araujo, C. F., & Frio, R. S. (2023). What makes the corporate social responsibility impact on customer–company identification stronger? A meta-analysis. International Journal of Research in Marketing., 40 (2), 475–492.

Vlachos, P. A., Tsamakos, A., Vrechopoulos, A. P., & Avramidis, P. K. (2009). Corporate social responsibility: Attributions, loyalty, and the mediating role of trust. Journal of the Academy of Marketing Science., 37 , 170–180.

Wagner, T., Lutz, R. J., & Weitz, B. A. (2009). Corporate hypocrisy: Overcoming the threat of inconsistent corporate social responsibility perceptions. Journal of Marketing., 73 (6), 77–91.

Wang, H., Gibson, C., & Zander, U. (2020). Editors’ comments: Is research on corporate social responsibility undertheorized? Academy of Management Review., 45 (1), 1–6.

Wang, Y., Qin, M. S., Luo, X., & Kou, Y. (2022). Frontiers: How support for Black Lives Matter impacts consumer responses on social media. Marketing Science., 41 (6), 1029–1044.

White, K., Habib, R., & Hardisty, D. J. (2019). How to SHIFT consumer behaviors to be more sustainable: A literature review and guiding framework. Journal of Marketing., 83 (3), 22–49.

Winterich, K. P., Reczek, R. W., & Bollinger, B. (2023). Reducing emissions across the consumption cycle and an agenda for future research on consumers and climate change: Introduction to the special issue on climate change. Journal of the Association for Consumer Research, 8 (3), 237–241.

Woodroof, P. J., Deitz, G. D., Howie, K. M., & Evans, R. D. (2019). The effect of cause-related marketing on firm value: A look at fortune’s most admired all-stars. Journal of the Academy of Marketing Science., 47 , 899–918.

World Commission on Environment and Development. (1987). Our common future . Oxford: Oxford University Press.

World Economic Forum. (2024). Stakeholder metrics initiative: Over 150 companies implement sustainability reporting metrics. Retrieved from https://www.weforum.org/impact/stakeholder-capitalism-reporting-metrics-davos2024/ .

Wu, Y., Zhang, K., & Xie, J. (2020). Bad greenwashing, good greenwashing: Corporate social responsibility and information transparency. Management Science., 66 (7), 3095–3112.

Zikmund, W. G., & Stanton, W. J. (1971). Recycling solid wastes: A channels-of-distribution problem. Journal of Marketing., 35 (3), 34–39.

Zou, P., Wang, Q., Xie, J., & Zhou, C. (2020). Does doing good lead to doing better in emerging markets? Stock market responses to the SRI index announcements in Brazil, China, and South Africa. Journal of the Academy of Marketing Science., 48 (5), 966–986.

Download references

Author information

Authors and affiliations.

Haslam College of Business, University of Tennessee, Knoxville, TN, 37996, USA

Youngtak M. Kim

Terry College of Business, University of Georgia, Athens, GA, 30602, USA

Neil T. Bendle, John Hulland & Michael D. Pfarrer

You can also search for this author in PubMed   Google Scholar

Corresponding author

Correspondence to Youngtak M. Kim .

Ethics declarations

Conflicts of interest.

The authors declare that they have no conflict of interest.

Additional information

Publisher's note.

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Praveen Kopalle served as Guest Editor for this article.

Rights and permissions

Springer Nature or its licensor (e.g. a society or other partner) holds exclusive rights to this article under a publishing agreement with the author(s) or other rightsholder(s); author self-archiving of the accepted manuscript version of this article is solely governed by the terms of such publishing agreement and applicable law.

Reprints and permissions

About this article

Kim, Y.M., Bendle, N.T., Hulland, J. et al. Corporate sustainability research in marketing: Mapping progress and broadening our perspective. J. of the Acad. Mark. Sci. (2024). https://doi.org/10.1007/s11747-024-01050-9

Download citation

Accepted : 24 August 2024

Published : 20 September 2024

DOI : https://doi.org/10.1007/s11747-024-01050-9

Share this article

Anyone you share the following link with will be able to read this content:

Sorry, a shareable link is not currently available for this article.

Provided by the Springer Nature SharedIt content-sharing initiative

• Corporate sustainability
• Triple Bottom Line
• Find a journal
• Publish with us
• Track your research