Market Structure, Spin-Off, and Efficiency: Evidence from Indonesian Islamic Banking Industry

After the enactment of Law 21 in 2008 that stated about the spin-off of Islamic banking units, some Islamic business units had done the spin-off. This led to an increase in the number of full-fledged Islamic banks. This study examines the relationship among spin-offs, market structure, and efficiency in the Islamic banking industry. We find a difference in efficiency between spin-off banks and non-spin-off banks. The increasing number of full-fledged Islamic banks does not mean that performance (measured by efficiency) will increase. These results show the opposite result with the goal of spin-off policy, which is to enhance the performance of Islamic banks.