Impact of Audit Quality on Financial Performance of Islamic and Conventional Banks: Evidence from the MENA Region

This study examines the impact of audit quality, bank-specific factors, and political turmoil on financial performance, as measured by Return on Assets, using a fixed-effects model. The analysis is conducted on a full sample of banks and further categorised into Islamic and conventional banks. The results indicate that audit quality has a significant positive effect on Return on Assets (ROA) across all models, reinforcing the role of high-quality audits in enhancing financial performance. Bank size, leverage, liquidity, profitability before taxes, and capital adequacy ratio also exhibit strong positive relationships with ROA, emphasizing their importance in driving profitability. Political turmoil, however, presents a mixed impact, while it negatively affects the full sample, it has a significant positive effect on Islamic banks, suggesting their resilience in politically unstable environments. The fixed effects model is validated using the Hausman test, confirming its suitability for this analysis. These findings offer valuable insights for policymakers, regulators, and banking institutions in assessing financial stability and performance under varying economic conditions.