Abstract
The purpose of this paper is to investigate the impact of internal characteristics of Mudārbahs (e.g. size, leverage, liquidity, operating expenses, management fee charged by Mudārbahs and age) on profitability measured as profit margin, return on investment and earnings per certificate. Data was taken from financial statement analysis (FSA) of financial firms compiled by the State Bank of Pakistan from 2011 to 2015. Regression results show that size is positively while leverage and operating expenses are negatively related to profit margin and return on investment. Management fee charged by Mudārbahs is positively related to all performance measures. Age of Mudārbahs is negatively related to all performance measures however the relationship is found significant with return on investment and earnings per certificate. Finally, liquidity is the only variable that found statistically insignificant in all regressions. In short, results suggest that internal characteristics of Mudārbahs have substantial effects on profitability.
Keyword(s)
Mudārbah, Leverage, Return on Investment, Profit Margin, Pakistan