Influence of spin-off decision on financing risk: Empirical insight from Indonesian Islamic banks

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Indonesia stands as a pioneer in implementing the dual banking system and has established a spin-off policy to foster the growth of Islamic banking. This study investigates whether the spin-off decision has a significant impact on financing risk in Indonesian Islamic banks. Methods Financing risk is measured by the non-performing financing ratio, while the spin-off decision is represented by a dummy variable equal to 1 for the post-spin-off period and 0 for the pre-spin-off period. This study utilizes data from semi-annual reports of 35 Indonesian Islamic banks and analyzes it using a dynamic panel model with the Generalized Method of Moments (GMM) to overcome potential endogeneity issues that might bias the results. Results The findings reveal that spin-offs significantly reduce financing risk, thereby enhancing the financial resilience and boosting investor appeal. Notably, this implies that Islamic banks operating as Islamic windows exhibit a higher level of financing risk compared to fully-fledged Islamic banks. Furthermore, a noteworthy pattern emerges that spin-off Islamic banks with substantial assets demonstrate greater risk in comparison to their counterparts with more modest assets. System GMM also confirmed the result. Conclusions Islamic banks can significantly reduce their financing risks by establishing independent Islamic banks, or spin-offs. Unlike Islamic windows, which are typically integrated within conventional banks and face higher risk levels, standalone Islamic banks offer greater flexibility and control over their operations. Therefore, spin-off policies for Islamic banks appear to be a viable strategy, as independence fosters enhanced risk sensitivity. 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F1000Research 2025, 13 :1251 ( https://doi.org/10.12688/f1000research.157435.3 ) NOTE: If applicable, it is important to ensure the information in square brackets after the title is included in all citations of this article. Close Copy Citation Details Export Export Citation Sciwheel EndNote Ref. Manager Bibtex ProCite Sente EXPORT Select a format first Track Share ▬ ✚ Research Article Revised Influence of spin-off decision on financing risk: Empirical insight from Indonesian Islamic banks [version 3; peer review: 3 approved, 1 approved with reservations] Zulfikar Bagus Pambuko https://orcid.org/0000-0002-3944-2485 1,2 , Jaka Sriyana 1 , Akhsyim Affandi 1 , Abdul Hakim 1 Zulfikar Bagus Pambuko https://orcid.org/0000-0002-3944-2485 1,2 , Jaka Sriyana 1 , Akhsyim Affandi 1 , Abdul Hakim 1 PUBLISHED 28 Apr 2025 Author details Author details 1 Universitas Islam Indonesia, Yogyakarta, 55598, Indonesia 2 Universitas Muhammadiyah Magelang, Magelang, 56172, Indonesia Zulfikar Bagus Pambuko Roles: Conceptualization, Data Curation, Funding Acquisition, Methodology, Software, Writing – Original Draft Preparation, Writing – Review & Editing Jaka Sriyana Roles: Conceptualization, Investigation, Software, Supervision, Validation, Writing – Review & Editing Akhsyim Affandi Roles: Conceptualization, Investigation, Supervision, Validation, Writing – Review & Editing Abdul Hakim Roles: Conceptualization, Investigation, Supervision, Validation, Writing – Review & Editing OPEN PEER REVIEW DETAILS REVIEWER STATUS Abstract Background Spin-offs play a significant role in organizational development strategies, particularly in Islamic banking, by fostering entrepreneurship, innovation, and Shariah-compliant management practices. Indonesia stands as a pioneer in implementing the dual banking system and has established a spin-off policy to foster the growth of Islamic banking. This study investigates whether the spin-off decision has a significant impact on financing risk in Indonesian Islamic banks. Methods Financing risk is measured by the non-performing financing ratio, while the spin-off decision is represented by a dummy variable equal to 1 for the post-spin-off period and 0 for the pre-spin-off period. This study utilizes data from semi-annual reports of 35 Indonesian Islamic banks and analyzes it using a dynamic panel model with the Generalized Method of Moments (GMM) to overcome potential endogeneity issues that might bias the results. Results The findings reveal that spin-offs significantly reduce financing risk, thereby enhancing the financial resilience and boosting investor appeal. Notably, this implies that Islamic banks operating as Islamic windows exhibit a higher level of financing risk compared to fully-fledged Islamic banks. Furthermore, a noteworthy pattern emerges that spin-off Islamic banks with substantial assets demonstrate greater risk in comparison to their counterparts with more modest assets. System GMM also confirmed the result. Conclusions Islamic banks can significantly reduce their financing risks by establishing independent Islamic banks, or spin-offs. Unlike Islamic windows, which are typically integrated within conventional banks and face higher risk levels, standalone Islamic banks offer greater flexibility and control over their operations. Therefore, spin-off policies for Islamic banks appear to be a viable strategy, as independence fosters enhanced risk sensitivity. READ ALL READ LESS Keywords Islamic Banks, Non-Performing Financing, Financial Resilience, Government Policy Corresponding Author(s) Zulfikar Bagus Pambuko ( [email protected] ) Close Corresponding author: Zulfikar Bagus Pambuko Competing interests: No competing interests were disclosed. Grant information: Funding for this research was provided by Kementerian Pendidikan, Kebudayaan, Riset, dan Teknologi Number 0162/E5.4/DT.05.00/2023 through their Higher Education Excellence Basic Research program. The funders had no role in study design, data collection and analysis, decision to publish, or preparation of the manuscript. Copyright: © 2025 Pambuko ZB 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 work is properly cited. How to cite: Pambuko ZB, Sriyana J, Affandi A and Hakim A. Influence of spin-off decision on financing risk: Empirical insight from Indonesian Islamic banks [version 3; peer review: 3 approved, 1 approved with reservations] . F1000Research 2025, 13 :1251 ( https://doi.org/10.12688/f1000research.157435.3 ) First published: 18 Oct 2024, 13 :1251 ( https://doi.org/10.12688/f1000research.157435.1 ) Latest published: 28 Apr 2025, 13 :1251 ( https://doi.org/10.12688/f1000research.157435.3 ) Revised Amendments from Version 2 The revised version includes an additional conceptual framework section and incorporates minor revisions based on reviewers’ feedback. The revised version includes an additional conceptual framework section and incorporates minor revisions based on reviewers’ feedback. See the authors' detailed response to the review by Mutamimah Mutamimah See the authors' detailed response to the review by Agus Widarjono See the authors' detailed response to the review by Eko Suprayitno See the authors' detailed response to the review by Azharsyah Ibrahim READ REVIEWER RESPONSES Introduction Islamic banking has emerged as a vital component of the global financial landscape, offering a unique alternative based on principles grounded in ethical and Shariah-compliant practices ( Al Ansari & Alanzarouti, 2020 ; Jaafar & Brightman, 2022 ). Islamic banks dominate 70% of the total assets in the global Islamic finance sector, signifying a growth of 17% compared to the previous period. The primary driving force behind this accomplishment is the significant contribution of countries with Muslim-majority populations, particularly in the GCC, MENA, and Southeast Asia regions. This progress is primarily supported by effective governance and well-suited policies ( ICD IsDB, 2022 ). In Indonesia, a prominent Muslim-majority nation, the Islamic banking sphere has showcased notable expansion and adaptability, establishing its role as a crucial element within the nation’s financial framework ( Trinugroho et al., 2018 ). Within this period of growth, the spin-off policy has been contemplated as a strategy to navigate the complexities of contemporary banking while adhering Shariah principles ( Pambuko & Sriyana, 2023 ; Trinugroho et al., 2021 ). The phenomenon of spin-off becomes the one of the key dynamics influencing the financial performance of Indonesian Islamic banks ( Pambuko & Sriyana, 2023 ; Trinugroho et al., 2021 ). As a strategy, this refers to the process of establishing separate entities from the parent institution, often with distinct business focuses ( Chai et al., 2018 ). According to Article 68 of Law 21 of 2008, all Islamic windows are required to undergo a spin-off after 15 years or if their assets have exceeded 50% of their conventional parent bank’s assets ( Nurkarim et al., 2021 ; Pambuko, 2019 ; Rokhmawati et al., 2022 ). The growing importance of this matter is underscored by the fact that the amendment of Law No. 21/2008 into Law No. 4/2023 retains spin-off as a key strategy for the acceleration of Islamic banking in Indonesia, albeit with the necessity of proper alignment. These spin-offs were achieved through various methods, including pure spin-offs, conversions, mergers, and acquisitions ( Al Arif, Masruroh, et al., 2020a ). The rationale behind such spin-offs often involves streamlining operations, improving risk management, optimizing organizational structures, enhancing efficiency, fostering growth, and complying with sharia law ( Al Arif, 2014 ; Al Arif et al., 2018 ; Hamid, 2015 ). The Financial Services Authority of Indonesia (2023) reports a significant increase in Islamic banking institutions as of May 2023. There are now 13 Islamic commercial banks and 20 Islamic windows, compared to just 5 commercial banks and 27 windows before the spin-off policy’s implementation. This law, enacted in 2008, mandated all Islamic windows to become full-fledged Islamic banks by 2023 ( Pambuko et al., 2024 ). However, many Islamic windows haven’t completed this process, highlighting the need for further study on how spin-offs impact Islamic banking performance and their adherence to Sharia principles. Furthermore, the issue of spin-offs has also become one of the key strategies to enhance the contribution of Islamic banking in other countries. As reported, Pakistan, Bahrain, Kuwait, and Afghanistan are among the countries earnestly implementing this issue in the development of Islamic banks ( ICD IsDB, 2022 ). Therefore, Indonesia, as a pioneer of the implementation of spin-off strategy in the Islamic banking sector, deserves to be a benchmark in the implementation of this strategy, particularly as an effort to sustain the Islamic banking industry. In the last decade, many researchers have directed their attention toward identifying the impact of spin-off policies on the performance of Islamic banks. Several indicators of financial performance have been focused on, including profitability ( Hamid, 2015 ; Nurkarim et al., 2021 ), efficiency ( Al Arif et al., 2018 ; Al Arif, Mufraini, et al., 2020b ; Al Arif & Nabilah, 2022 ; Hadziq et al., 2022 ; Pambuko, 2019 ; Rusydiana et al., 2019 ), market share ( Al Arif, 2017 ; Al Arif et al., 2023 ), asset growth ( Al Arif, 2015a ; Al Arif et al., 2017 ), financing growth ( Al Arif, 2015b ), deposit growth ( Al Arif, 2014 , 2018b , 2018a ; Al Arif et al., 2024 ), and market power ( Rayyani et al., 2022 ). While there’s been a lot of research on spin-offs, how they affect a bank’s risk of financing risk (bad loans) has not been well-studied. This is an important gap to address, especially considering the recent Basel III framework from the Basel Committee on Banking Supervision (BCBS). These new global regulations aim to make banks worldwide more stable by considering all their risks, both from loans they’ve made (on-balance sheet) and from their commitments (off-balance sheet exposures) ( Abdurraheem et al., 2023 ). This scientific paper aims to bridge these knowledge gaps by offering an empirical analysis of the relationship between spin-off decision and the prevalence of financing risk in the Indonesian Islamic banking sector. While previous research suggests spin-off decisions can improve financial performance, the potential effect on financing risk has been overlooked. This study will address this gap by examining how spin-offs influence financing risk. This is crucial given the pivotal role of financing risk management in impacting profitability, financing capacity, and overall financial stability ( Pratami et al., 2023 ; Sriyana, 2015 ), where spin-offs hold the potential to mitigate such risks. By untangling these linked factors, we aim to provide valuable insights for both academics and Islamic bankers, fostering a deeper understanding of how strategic restructuring impacts the financial soundness of Islamic banks. Moreover, given the intricate relationships between spin-off strategies and financing risk, policy implications and strategic recommendations stemming from this study could serve as a catalyst for informed decision-making within the Islamic banking industry. Literature review The management of bad financing or non-performing financing (NPF) presents a critical challenge for Islamic banking institutions in Indonesia ( Imaduddin, 2008 ; Nugroho et al., 2018 ; Soekapdjo et al., 2018 ). Non-performing financing, characterized by loans or financing contracts in default or at risk of default, can have far-reaching implications on the stability and credibility of financial institutions ( Hernawati et al., 2021 ). In traditional banking, its known as non-performing loan (NPL). The existence of financing risk can hinder the stability of Islamic banking entities, potentially jeopardizing their capacity to facilitate economic growth and foster financial inclusivity ( Banna et al., 2022 ). Considering the distinct characteristics of Islamic finance, rooted in risk-sharing and asset-backed principles, a comprehensive exploration of how spin-off decisions influence financing risk, specifically non-performing financing, requires further investigation. Bank-specific factors influencing financing risk Research on NPF in Islamic banking and NPL in conventional banking reveals that various internal and external factors influence financing risk. For conventional banks, external factors such as macroeconomic conditions play a dominant role in shaping NPL levels, while in Islamic banks, both internal and external factors significantly affect NPF ( Loang et al., 2023 ; Setiawan et al., 2017 ). Among bank-specific factors, an increase in NPF is associated with variables such as bank size, operating efficiency ratio, liquid asset ratio, financing-to-deposit ratio, and foreign ownership ( Havidz & Setiawan, 2015 ; Hosen & Muhari, 2019 ; Osunkoya et al., 2023 ; Rahim & Zakaria, 2013 ; Saw et al., 2022 ; Zheng et al., 2019 ). Conversely, factors that contribute to a reduction in NPF include higher net operating profit, capital adequacy ratio, return on assets, cost-to-income ratio, deposit fund growth, return on equity, loan growth, and market concentration ( Hartanto & Samputra, 2023 ; Hosen & Muhari, 2019 ; Muhammad et al., 2020 ; Rahim & Zakaria, 2013 ; Shah et al., 2023 ; Zheng et al., 2019 ). Furthermore, a high concentration of financing has been shown to negatively impact non-performing financing ( Sutrisno et al., 2023 ). This underscores the necessity for a comprehensive understanding of the distinct risk profiles associated with various Islamic financing instruments in effective credit risk management. For instance, Warninda et al. (2019) found that, contrary to some assumptions, Mudarabah financing is not inherently riskier than Musharakah financing. Macroeconomic factors influencing financing risk Macroeconomic conditions also significantly impact the level of financing risk in Islamic banks. Negative economic indicators such as exchange rate fluctuations, inflation, and economic policy uncertainty have been found to increase NPF levels ( Addou et al., 2024 ; Firmansyah, 2014 ; Hosen & Muhari, 2019 ; Karadima & Louri, 2021 ; Osunkoya et al., 2023 ; Zheng et al., 2019 ). On the other hand, positive macroeconomic trends such as GDP growth and reduced unemployment contribute to a decrease in NPF ( Ferhi, 2018 ; Hassan et al., 2019 ; Hernawati et al., 2021 ; Le & Diep, 2020 ; Nasir et al., 2022 ; Zheng et al., 2019 ). Oil price also contribute to a decrease in NPF ( Al Jabri et al., 2022 ; Ryandono et al., 2022 ). Additionally, a surplus in foreign exchange reserves can trigger a financing boom, which may subsequently affect financing quality and contribute to increased NPF levels ( Kuncoro, 2024 ). Conceptual framework Although numerous factors have been identified as influencing financing risk, the findings across studies tend to show inconsistencies. These discrepancies may be attributed to differences in research settings, observation periods, and data analysis techniques. Nevertheless, this study focuses on presenting findings that are theoretically grounded and relevant to the existing literature. In line with this, the main objective of this research is to examine the impact of the spin-off decision on financing risk in Islamic banking in Indonesia—an aspect that has not been previously explored. The study also incorporates control variables, including internal bank conditions (bank size and market share) and macroeconomic indicators (inflation, economic growth, and oil price). The conceptual framework is illustrated in Figure 1 , and the hypotheses are formulated as follows: H1: The spin-off decision has a negative effect on financing risk H2: Bank size has a positive effect on financing risk H3: Market share has a positive effect on financing risk H4: Inflation has a positive effect on financing risk H5: Economic growth has a negative effect on financing risk H6: Oil price has a negative effect on financing risk Figure 1. Conceptual framework. Methods To examine the impact of spin-off decisions on financing risk, this study utilizes semi-annual bank-level data from 2006 to 2022 for Islamic banks in Indonesia. The bank-specific data, derived from the financial statements of 35 Islamic banks, were acquired from the Islamic Banking Statistics which is reported by Indonesian Financial Services Authority (FSA). The sample consists of 16 full-fledged Islamic banks and 19 Islamic windows. Macroeconomic data were sourced from Statistics Indonesia, Bank Indonesia, and OPEC basket price. We employed an unbalanced panel dataset encompassing 1032 observations. The Indonesian Islamic banking landscape has witnessed various restructuring strategies. Pure spin-offs were employed by banks such as Bukopin Syariah and BNI Syariah in 2008, BRI Syariah in 2010, BJB Syariah in 2010, and Bank Nano Syariah in 2024. Conversion, another common approach, was adopted by BTPN Syariah in 2014, Bank Aceh Syariah in 2016, BPD NTB Syariah in 2018, and BPD Riau Kepri Syariah in 2022. The formation of Bank Syariah Indonesia in 2021 marked a significant merger in the sector. Moreover, a combination of acquisition and conversion was utilized sequentially by banks including Bank Panin Dubai Syariah in 2009, Bank Victoria Syariah, BCA Syariah, and Bank Aladin Syariah in 2010. Table 1 explains the data we used in this study. We looked at the ratio of non-performing financing (NPF) to total financing, which is a common measure of bad loans in Islamic banks ( Saw et al., 2022 ). Spin-off is a proxy for spin-off decisions, represented by a dummy variable where 1 denotes post-spin-off time and 0 signifies pre-spin-off time. The bank-specific factors include bank size (log total assets of each Islamic bank) and market share, assessed by the individual Islamic bank’s asset over the total asset industry of Islamic banks. To understand the economic climate, we looked at the Consumer Price Index (CPI) for inflation and the Industrial Production Index (IPI) for economic growth. The variable OIL is based on the OPEC basket price, which represents the per-barrel oil price. This price serves as a crucial benchmark in determining crude oil prices in the global market, including Indonesia, although it is merely one of many indicators influenced by various complex factors. Table 1. Regression variables. Variable Description Source NPF Non-performing financing is the ratio of bad financing by total financing Islamic banking statistics Spinoff Dummy variable, it is one if the period after spin-off decision, zero otherwise Banks’ profile Bank size (SIZE) Natural logarithm of total assets Islamic banking statistics Market share (MS) The ratio of Islamic banks' assets to the industry's overall assets Islamic banking statistics CPI Inflation is measured using the Consumer Price Index (CPI), which compares the total cost of a fixed basket of goods and services in the current period to the cost of the same basket in a base period Bank of Indonesia IPI Economic growth is measured using the Industrial Production Index (IPI), which is calculated by dividing the value of production in a specific period by the value of production in the base year 2010 Statistics Indonesia Oil Price (OIL) A weighted average price of crude oil blends produced by the OPEC member countries OPEC basket price This study utilizes a dynamic panel regression model with individual fixed effects to assess the impact of spin-off decisions on financing risk for Islamic banks in Indonesia. The dynamic panel approach addresses both unobserved bank-specific characteristics and potential endogeneity issues that might bias the results. To further account for potential simultaneity and correlation between variables, the study employs the Generalized Methods of Moment (GMM) estimation technique. This approach was adopted to mitigate several underlying problems commonly encountered in panel data, specifically endogeneity, heteroskedasticity, and autocorrelation. Equation (1) details the empirical model used in this analysis, which incorporates the spin-off decision as the main independent variable. Additionally, control variables such as bank size, market share, and macroeconomic factors like inflation, economic growth, and oil price are included to account for their potential influence on financing risk. (1) Y it = α + β 1 Y it − 1 + β 2 Spinoff t + β 3 BankSpecific i , t + β 4 MacroEconomic t + ε i , t Where Y it is the non performing financing (NPF) for bank i and year t ; Spinoff t is a dummy variable, it is one if the period after spin-off decision, zero otherwise; BankSpecific i,t is control variable consisting of bank size dan market share; MacroEconomic t is control variable consisting of inflation, economic growth, and oil price; and ε i,t is the error term. The first lag of the dependent variable has been integrated into the model as an independent variable to address the possible persistence of NPF changes in time. Our analyses utilized a difference GMM Arellano-Bond estimator. To ensure robustness, we conducted a two-step System GMM estimator for further validation. Then we analyze the impact of bank size on the interaction between spin-off decisions and non-performing financing. We created an interaction variable in the form of Spinoff t *Size it for this purpose. The Equation (2) represents the estimation model. (2) Y it = α + β 1 Y it − 1 + β 2 Spinoff t + β 3 Spinoff t ∗ Size it + β 4 BankSpecific i , t + β 5 MacroEconomic t + ε i , t Data analysis was conducted using EViews 12 by S&P Global. Prior to interpretation, diagnostic tests were performed. The Sargan test was employed to assess the validity of the instruments, while the Arellano-Bond test was used to detect the presence of autocorrelation. A lag order of one (lag 1) was used for estimation. A well-specified model should exhibit valid instruments and no autocorrelation. Results and Discussion Descriptive analysis Table 2 presents descriptive statistics for the variables spanning from 2006 to 2022. The average value of NPF, as a financing risk proxy, stands at 3.10%, remaining below the generally accepted upper limit of 5.00%. The lowest NPF value, at 0.00%, indicates that some Islamic banks exhibit no risky financing, while the highest recorded NPF value is 53.27%. This relatively high variability is supported by a standard deviation of 4.17%. SPINOFF, a dummy variable, has a mean of 0.27, indicating that spin-off events are relatively rare. Its standard deviation of 0.45 suggests moderate variability in occurrence. Regarding assets and market share, the lower mean values compared to the standard deviation suggest that Islamic banks in Indonesia are still dominated by a few larger banks, reflecting differences in institutional capacity and market reach. Table 2. Descriptive analysis of variables. Obs. Mean Max Min Std. Dev. SPINOFF 1032 0.27 1.00 0.00 0.45 NPF 1032 3.10 53.27 0.00 4.17 SIZE (IDR million) 1032 9579281.35 305727438.00 3176.00 22725240.62 MS 1032 3.23 40.13 0.01 6.39 CPI 1032 4.90 15.53 1.33 2.70 IPI 1032 122.54 151.76 95.71 18.33 OIL (IDR million/barrel) 1032 0.86 1.70 0.34 0.28 Similarly, the Consumer Price Index (CPI) and Industrial Production Index (IPI) show moderate variability, with standard deviations of 2.70 and 18.33, respectively, reflecting macroeconomic conditions that influence Islamic banking performance. Oil prices (OIL), a critical variable for resource-dependent economies, have a mean of IDR 0.86 million per barrel, with relatively stable fluctuations (standard deviation of 0.28). This stability contrasts with the high variability observed in institutional size and non-performing financing. Overall, the descriptive analysis underscores significant heterogeneity in institutional characteristics and economic factors, suggesting the need for tailored strategies in managing Islamic banks. Institutions must address wide disparities in size and market share, ensuring resilience to external economic conditions such as inflation, industrial output fluctuations, and oil price volatility. Empirical results The analysis commenced by identifying the issue of multicollinearity among the independent variables. Table 3 displays the correlation scores among the independent variables. A correlation score of < 0.8 was indicative of the absence of multicollinearity ( Mukhibad, Nurkhin et al., 2023b ; Rizvi et al., 2020 ). The highest correlation between independent variables was 0.5678 (correlation between SIZE and IPI), followed by SIZE and MS (0.5592). These findings signify the absence of multicollinearity within the model. Table 3. Correlation matrix. SIZE MS CPI IPI OIL SIZE 1 MS 0.5592 1 CPI -0.3750 0.0442 1 IPI 0.5678 -0.0440 -0.5417 1 OIL 0.1693 -0.0254 -0.0330 0.2726 1 The subsequent analysis examines the impact of spin-off decisions on the financing risk of Islamic banks. Table 4 presents the outcomes of the difference GMM and system GMM. Difference GMM estimator is depicted in regressions (1)-(4), while system GMM estimator in regressions (5)-(8). Regressions (1) and (5) only incorporate bank-specific variables, consisting of assets (SIZE) and market share (MS). In regressions (2) and (6), we include additional control variables such as inflation (CPI), economic growth (IPI), and global oil prices (OIL). In regressions (3), (4), (7), and (8), we introduce interaction variables, specifically spin-off*size. Towards the end of the table, it is indicated that no issues of instrumental validity and autocorrelation were found. To elaborate, the results of the Sargan test reject the null hypothesis, confirming the validity of the instruments. Furthermore, the results of the Arellano-Bond autocorrelation test, AR(2), also reveal the absence of autocorrelation in the model. Table 4. Determinants of Islamic banks’ performance. Difference GMM System GMM (1) (2) (3) (4) (5) (6) (7) (8) NPF(-1) 0.3599 * (1385.50) 0.3468 * (349.62) 0.3555 * (593.07) 0.3408 * (134.95) 0.3768 * (2221.58) 0.3737 * (119.03) 0.3761 * (172.18) 0.3687 * (90.03) spinoff 1.1110 * (380.49) 0.6900 * (63.40) -31.4797 * (-172.45) -31.3797 * (-40.51) -1.5722 * (-1614.53) -1.6502 * (-50.65) -19.8628 * (-95.16) -23.4687 * (-39.38) spinoff * size 1.1062 * (165.72) 1.0860 * (37.81) 0.6136 * (75.08) 0.7271 * (36.60) SIZE 0.1351 * (58.24) 0.2951 * (17.06) -0.1487 * (-34.82) 0.0808 ** (2.49) 0.2491 * (1814.80) 0.2059 * (6.34) 0.1836 * (35.65) 0.2364 * (7.82) MS 0.1760 * (239.99) 0.1574 * (20.22) 0.1327 * (32.35) 0.1042 * (8.22) 0.0349 * (57.10) 0.0366 ** (2.37) 0.0286 * (7.65) 0.0327 *** (1.66) CPI 0.0038 * (4.40) 0.0002 (0.10) 0.0035 * (4.58) 0.0061 * (3.01) IPI -0.0002 (-0.10) -0.0065 *** (-1.75) 0.0106 * (4.66) 0.0047 *** (1.72) OIL -1.1527 * (-97.11) -1.2491 * (-49.54) -1.2242 * (-36.87) -1.4065 * (-34.90) Sargan test 0.3890 0.3166 0.4097 0.3601 0.3991 0.3155 0.3998 0.3029 AR(1) 0.0000 0.0251 0.0297 0.0256 AR(2) 0.1660 0.1532 0.1452 0.1467 No. of Obs. 948 948 948 948 948 948 948 948 * p<0.01 . ** p<0.05 . *** p<0.1. The findings from the analysis provide compelling evidence regarding the influence of the lagged dependent variable, NPF(-1), which consistently exhibits a statistically significant positive effect across all models at the 1% significance level. This outcome substantiates the notion that the financing risk experienced in the preceding period contributes to an increase in the non-performing financing ratio during the present period. This result underscores a significant challenge in the Islamic banking sector, suggesting that the mechanisms in place to address the issue of bad financing have not yet achieved optimal effectiveness. This aligns with previous research conducted by Mukhibad, Jayanto et al. (2023a) , who reached similar conclusions in their study. Notably, the finding underscores the persisting complexity of managing NPF in Islamic banking and emphasize the need for more refined strategies to mitigate such risks. Interestingly, the result contrasts with those of Hartanto & Samputra (2023) , whose research indicated a potential improvement in the non-performing financing situation from period t-1 to period t. This variation emphasizes the intricate and many-sided aspects of how financing risk behaves in Islamic banking. Regarding the main focus of this study, it becomes apparent that the spin-off decisions undertaken by Islamic banks wield a substantial and statistically significant impact, consistently evident at the 1% significance level across all models. This pervasive influence, however, diverges in models (1) and (2). Specifically, the majority of models reveal a noteworthy negative effect resulting from the strategic choice of Islamic banks to embark on spin-offs. This intriguing discovery underscores a pivotal insight – that the judicious adoption of spin-off strategies by Islamic banks yields a salutary outcome, effectively tempering the levels of financing risk. This outcome resonates with the emerging understanding that Islamic banks’ autonomy in resource management holds the potential to substantially shape their risk profile. This profound effect echoes the findings of a distinct study, where a compelling revelation was made that full-fledged Islamic banks exhibit a more adept ability to mitigate non-performing financing as compared to Islamic windows ( Pambuko & Pramesti, 2020 ; Pernamasari, 2020 ). These findings collectively affirm the advantageous influence of spin-off decisions in fostering improved risk management practices and enhancing the overall stability of Islamic banking entities. We also investigated the impact of size on financing risk. The analysis results reveal that size has a significant positive impact on non-performing financing, except in model (3) where it has a negative impact. The finding indicates that an increase in the asset size will increase financing risk. The result supports the finding of Hosen and Muhari (2019) and Saw et al. (2022) . It is also validated the ‘bad management theory’ proposed by Berger and DeYoung (1997) . Within this theoretical framework, the orchestration of poor management practices within banking institutions leads to lower loan quality and increases the level of non-performing loans. This is further supported by the significant positive effect of the interaction variable (spinoff*size), indicating that larger Islamic banks undergoing spin-offs face elevated financing risk compared to smaller ones. As highlighted by Trinugroho et al. (2021) , the multifaceted nature of financing contracts in Islamic banking substantially elevates the risk of non-performing financing. Consequently, substantial asset expansion and spin-off implementation carry inherent risks that can be amplified by insufficient managerial readiness, making it harder to maintain financing quality. Further analysis concerning the impact of market share on the financing risk of Islamic banks was conducted. Across all models, a positive relationship between market share and non performing financing is revealed, except in models (6) and (8), where the relationship is significant at the 5% and 10% levels, respectively. The finding strengthens the previous estimations indicating that greater asset dominance increases the potential for non-performing financing. As for the control variables, we only found robust and negatively correlated estimates for NPF and OIL. This negative relationship explains that an increase in global oil prices will decrease financing risk for Islamic banks. With a certain level of oil price increase, related product prices become more competitive, stimulating business sectors and lowering financing risk. As Abimanyu et al. (2023) pointed out, Indonesia’s policy aims to ensure that global oil price movements contribute positively to the state’s finances and trade, while minimizing inflationary risks. The result also supports the findings of Ryandono et al. (2022) dan Al Jabri et al. (2022) . On the other hand, economic growth and inflation exhibit inconsistent results across different model specifications. Inflation generally exerts a positive influence on financing risk, as observed in models 2, 6, and 8. This finding aligns with previous studies, which suggests that inflation can reduce purchasing power, leading to increased loan defaults ( Awdeh et al., 2024 ; Patiu & Eleazar, 2024 ). However, the impact of economic growth on financing risk is more nuanced, with negative effects observed in the difference GMM estimation and positive effects in the system GMM estimation. This discrepancy might be attributed to the non-linear relationship between economic growth and NPF. The difference GMM method may suggest short-term effects, potentially indicating that during periods of economic expansion, borrowers exhibit a higher propensity for timely repayment. Conversely, the system GMM method, which is considered to provide more robust estimates overall, may reveal longer-term effects. Over extended periods of strong economic growth, banks may exhibit increased lending appetite and potentially relax credit standards, leading to a higher incidence of future repayment difficulties ( Castro, 2013 ; Huizinga & Laeven, 2019 ; Mongid et al., 2023 ). Furthermore, this divergence in results may be explained by the finite sample bias in difference GMM, which relies solely on the differenced data, discarding level information. Conclusion This study investigates the impact of spin-off decision – the separation of Islamic windows from their conventional parent banks to become full-fledged Islamic banks – on financing risk in Indonesian Islamic banks. We estimate over a substantial timeframe in the journey of Islamic banks in Indonesia, spanning from 2006 to 2022. Empirically, our findings reveal that Islamic windows carry a higher risk compared to full-fledged Islamic banks that undergo spin-offs. We also discover that spin-off Islamic banks with larger assets are more exposed to risk than those with smaller assets. This notice is supported by the regression that financing risk increases with the growth of assets and market share. Theoretically, this research contributes to the broader understanding of Islamic banking dynamics by providing empirical evidence on the risk implications of organizational structure transformation. Specifically, it highlights the potential risk reduction associated with the increased autonomy and focused operational framework of independent Islamic banks post-spin-off. These findings yield several policy implications. We have strong evidence that the independence of Islamic banks makes them more sensitive to risk and adept at mitigating it. Consequently, the implementation of a spin-off policy represents a viable approach. This is further supported by the amendment of Law No. 21/2008 to Law No. 4/2023, which continues to accommodate spin-offs as a policy to foster the growth and contribution of Islamic banking to the national economy. Moreover, the potential rise in market dominance by Islamic banks, which could amplify financing risk, calls for complementary policies to mitigate the potential negative outcomes. The present study has identified several limitations. The utilization of a dummy variable to assess the impact of spin-offs on financing risk, while effective in capturing the immediate effects of regulatory policies, may not fully account for the nuanced dynamics at play. Moreover, the study’s scope is constrained by the use of semi-annual data up to 2022 and its focus on the Indonesian Islamic banking industry. To address these limitations, future research could benefit from employing a difference-in-differences analysis to more precisely estimate the causal impact of spin-offs. Furthermore, incorporating a broader range of internal and external variables, as well as expanding the analysis to include Islamic banks in Southeast Asia or OIC countries, would provide a more comprehensive understanding of the phenomenon. Ethical considerations This study does not involve human participants, animal subjects, or plant specimens. Data availability Underlying data Zenodo: Influence of spin-off decision on financing risk: Empirical insight from Indonesian Islamic banks https://doi.org/10.5281/zenodo.13879461 ( Pambuko, 2024 ). The project contains the following underlying data: − dataset financing risk.xlsx Data are available under the terms of the Creative Commons Attribution 4.0 International license (CC-BY 4.0). Extended data The data used in this research is open-access and can be downloaded from the following website: Indonesian Banking Statistics on Financial Service Authority Website: https://www.ojk.go.id/en/kanal/perbankan/data-dan-statistik/statistik-perbankan-indonesia/Default.aspx ; BPS-Statistics Indonesia: https://www.bps.go.id/en/statistics-table/2/MjA3NyMy/indeks-produksi-bulanan-industri-besar-dan-sedang-menurut-kbli-2-digit--kbli-2020---2010-100-.html ; Bank Indonesia: https://www.bi.go.id/en/statistik/indikator/data-inflasi.aspx ; and OPEC Basket Price: https://www.opec.org/opec_web/en/data_graphs/40.htm . 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Publisher Full Text Comments on this article Comments (0) Version 3 VERSION 3 PUBLISHED 18 Oct 2024 ADD YOUR COMMENT Comment Author details Author details 1 Universitas Islam Indonesia, Yogyakarta, 55598, Indonesia 2 Universitas Muhammadiyah Magelang, Magelang, 56172, Indonesia Zulfikar Bagus Pambuko Roles: Conceptualization, Data Curation, Funding Acquisition, Methodology, Software, Writing – Original Draft Preparation, Writing – Review & Editing Jaka Sriyana Roles: Conceptualization, Investigation, Software, Supervision, Validation, Writing – Review & Editing Akhsyim Affandi Roles: Conceptualization, Investigation, Supervision, Validation, Writing – Review & Editing Abdul Hakim Roles: Conceptualization, Investigation, Supervision, Validation, Writing – Review & Editing Competing interests No competing interests were disclosed. Grant information Funding for this research was provided by Kementerian Pendidikan, Kebudayaan, Riset, dan Teknologi Number 0162/E5.4/DT.05.00/2023 through their Higher Education Excellence Basic Research program. The funders had no role in study design, data collection and analysis, decision to publish, or preparation of the manuscript. Article Versions (3) version 3 Revised Published: 28 Apr 2025, 13:1251 https://doi.org/10.12688/f1000research.157435.3 version 2 Revised Published: 04 Feb 2025, 13:1251 https://doi.org/10.12688/f1000research.157435.2 version 1 Published: 18 Oct 2024, 13:1251 https://doi.org/10.12688/f1000research.157435.1 Copyright © 2025 Pambuko ZB 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 work is properly cited. Download Export To Sciwheel Bibtex EndNote ProCite Ref. Manager (RIS) Sente metrics Views Downloads F1000Research - - PubMed Central info_outline Data from PMC are received and updated monthly. - - Citations open_in_new 0 open_in_new 0 open_in_new SEE MORE DETAILS CITE how to cite this article Pambuko ZB, Sriyana J, Affandi A and Hakim A. Influence of spin-off decision on financing risk: Empirical insight from Indonesian Islamic banks [version 3; peer review: 3 approved, 1 approved with reservations] . F1000Research 2025, 13 :1251 ( https://doi.org/10.12688/f1000research.157435.3 ) NOTE: If applicable, it is important to ensure the information in square brackets after the title is included in all citations of this article. COPY CITATION DETAILS track receive updates on this article Track an article to receive email alerts on any updates to this article. TRACK THIS ARTICLE Share Open Peer Review Current Reviewer Status: ? Key to Reviewer Statuses VIEW HIDE Approved The paper is scientifically sound in its current form and only minor, if any, improvements are suggested Approved with reservations A number of small changes, sometimes more significant revisions are required to address specific details and improve the papers academic merit. Not approved Fundamental flaws in the paper seriously undermine the findings and conclusions Version 3 VERSION 3 PUBLISHED 28 Apr 2025 Revised Views 0 Cite How to cite this report: Widarjono A. Reviewer Report For: Influence of spin-off decision on financing risk: Empirical insight from Indonesian Islamic banks [version 3; peer review: 3 approved, 1 approved with reservations] . F1000Research 2025, 13 :1251 ( https://doi.org/10.5256/f1000research.180998.r381249 ) The direct URL for this report is: https://f1000research.com/articles/13-1251/v3#referee-response-381249 NOTE: it is important to ensure the information in square brackets after the title is included in this citation. Close Copy Citation Details Reviewer Report 13 May 2025 Agus Widarjono , Universitas Islam Indonesia, Yogyakarta, Special Region of Yogyakarta, Indonesia Approved VIEWS 0 https://doi.org/10.5256/f1000research.180998.r381249 The comments INTRODUCTION Thank you for responding to comments and providing feedback. LITERATURE REVIEW Thank you for responding to comments and providing feedback. METHOD AND RESULT AND DISCUSSION ... Continue reading READ ALL The comments INTRODUCTION Thank you for responding to comments and providing feedback. LITERATURE REVIEW Thank you for responding to comments and providing feedback. METHOD AND RESULT AND DISCUSSION The author failed to respond to two robustness tests: 1. Changing variable of interest. There is no single measurement to measure Islamic bank financing risk as a dependent variable. Two methods are widely used, namely NPF (non-performing financing) and FLP (financing loss provision). To get robust results, the author needs to change the variable of interest. FLP is an alternative measure of financing risk. For example, see the following reference: Widarjono, A., Alam, M. M., Rafik, A., Afandi, A., & Sidiq, S. (2025). Nexus between competition, concentration and bank risk-taking in Indonesian Islamic banking. International Journal of Islamic and Middle Eastern Finance and Management , 18 (3), 672–690. (refer to 1) 2. Changing estimation method The dynamic panel model faces an endogeneity problem. The dynamic panel model is estimated by the GMM method. There are two GMM estimators, namely the first difference GMM (Arellano and Bond, 1991) and the system GMM (Arellano and Bover, 1995; Blundell and Bond, 1998) to address the endogeneity issue in the dynamic panel model using instrumental variables. The system GMM extends the first difference GMM to resolve the problems of instrument weakness so the system GMM generates more robust estimators than the first difference GMM. Therefore, authors must estimate using static panel regression as an alternative method for the robustness test. Furthermore, the dynamic panel method will generate a biased and inconsistent estimator if the cross-sectional object is small. The number of objects in this study is small, consisting of 35 Islamic banks. (Al-Muharrami & Murthy, 2016), see the following references: Al-muharrami, S., & Murthy, Y. S. R. (2016). Interest banking spreads in Oman and Arab GCC. International Journal of Emerging Markets , 12 (3), 532–549. (refer to 2 ) CONCLUSION Thank you for responding to comments and providing feedback. References 1. Widarjono A, Alam M, Rafik A, Afandi A, et al.: Nexus between competition, concentration and bank risk-taking in Indonesian Islamic banking. International Journal of Islamic and Middle Eastern Finance and Management . 2025; 18 (3): 672-690 Publisher Full Text 2. Al-muharrami S, Murthy Y: Interest banking spreads in Oman and Arab GCC. International Journal of Emerging Markets . 2017; 12 (3): 532-549 Publisher Full Text Competing Interests: No competing interests were disclosed. Reviewer Expertise: Islamic finance and banking I confirm that I have read this submission and believe that I have an appropriate level of expertise to confirm that it is of an acceptable scientific standard. Close READ LESS CITE CITE HOW TO CITE THIS REPORT Widarjono A. Reviewer Report For: Influence of spin-off decision on financing risk: Empirical insight from Indonesian Islamic banks [version 3; peer review: 3 approved, 1 approved with reservations] . F1000Research 2025, 13 :1251 ( https://doi.org/10.5256/f1000research.180998.r381249 ) The direct URL for this report is: https://f1000research.com/articles/13-1251/v3#referee-response-381249 NOTE: it is important to ensure the information in square brackets after the title is included in all citations of this article. COPY CITATION DETAILS Report a concern Respond or Comment COMMENT ON THIS REPORT Views 0 Cite How to cite this report: Ibrahim A. Reviewer Report For: Influence of spin-off decision on financing risk: Empirical insight from Indonesian Islamic banks [version 3; peer review: 3 approved, 1 approved with reservations] . F1000Research 2025, 13 :1251 ( https://doi.org/10.5256/f1000research.180998.r381251 ) The direct URL for this report is: https://f1000research.com/articles/13-1251/v3#referee-response-381251 NOTE: it is important to ensure the information in square brackets after the title is included in this citation. Close Copy Citation Details Reviewer Report 12 May 2025 Azharsyah Ibrahim , Universitas Islam Negeri Ar-Raniry, Banda Aceh, Indonesia Approved VIEWS 0 https://doi.org/10.5256/f1000research.180998.r381251 The author has ... Continue reading READ ALL The author has addressed all comments satisfactorily. Competing Interests: No competing interests were disclosed. Reviewer Expertise: Islamic business, economics, banking, and finance I confirm that I have read this submission and believe that I have an appropriate level of expertise to confirm that it is of an acceptable scientific standard. Close READ LESS CITE CITE HOW TO CITE THIS REPORT Ibrahim A. Reviewer Report For: Influence of spin-off decision on financing risk: Empirical insight from Indonesian Islamic banks [version 3; peer review: 3 approved, 1 approved with reservations] . F1000Research 2025, 13 :1251 ( https://doi.org/10.5256/f1000research.180998.r381251 ) The direct URL for this report is: https://f1000research.com/articles/13-1251/v3#referee-response-381251 NOTE: it is important to ensure the information in square brackets after the title is included in all citations of this article. COPY CITATION DETAILS Report a concern Respond or Comment COMMENT ON THIS REPORT Version 2 VERSION 2 PUBLISHED 04 Feb 2025 Revised Views 0 Cite How to cite this report: Widarjono A. Reviewer Report For: Influence of spin-off decision on financing risk: Empirical insight from Indonesian Islamic banks [version 3; peer review: 3 approved, 1 approved with reservations] . F1000Research 2025, 13 :1251 ( https://doi.org/10.5256/f1000research.176913.r372133 ) The direct URL for this report is: https://f1000research.com/articles/13-1251/v2#referee-response-372133 NOTE: it is important to ensure the information in square brackets after the title is included in this citation. Close Copy Citation Details Reviewer Report 14 Apr 2025 Agus Widarjono , Universitas Islam Indonesia, Yogyakarta, Special Region of Yogyakarta, Indonesia Approved with Reservations VIEWS 0 https://doi.org/10.5256/f1000research.176913.r372133 INTRODUCTION This study investigates the effect of the spin-off on NPF. The spin-off policy is a policy to improve the performance of Islamic banks in Indonesia. However, the author has not explained why NPF is used as a measure ... Continue reading READ ALL INTRODUCTION This study investigates the effect of the spin-off on NPF. The spin-off policy is a policy to improve the performance of Islamic banks in Indonesia. However, the author has not explained why NPF is used as a measure of the success of the spin-off policy. It needs to be explained why NPF is a serious problem in Islamic banking in Indonesia so that this spin-off policy can reduce financing risk. LITERATURE REVIEW Islamic bank financing is different from conventional bank financing. Islamic financing is broadly categorized as profit-loss sharing (PLS) financing and non-profit-sharing financing. PLS financings are subject to asymmetric information and moral hazard. As a result, PLS financing likely increases NPF. In this section, authors conduct the literature review regarding NPF but authors fail to address the impact of types of financing in Islamic banks on NPF. For example, see the following references : Warninda T., et al., (2019) [Ref-1] Sutrisno, S. et al., (2023) [Ref-2]. METHOD The difference and system GMM are a family of dynamic panel regression. The author must perform the robustness test with another estimation method. The author can employ static panel regression considering the number of banks is small (35 banks) while GMM requires a large number of banks. RESULT AND DISCUSSION Authors need to perform some robustness tests: 1. Changing variable of interest There is no single measure to calculate Islamic bank risk. To get robust results, the author needs to change the variable of interest. Financing loss provision (FLP) is an alternative measure of financing risk. For example, see the following reference: Widarjono A., et al., (2025) [Ref-3] 2. Changing estimation method Considering that the number of small banks is 35, the author needs to estimate the model with static panel regression. CONCLUSION In the conclusions, it is said that the spin-off policy is mandatory for every Islamic bank window. However, there is an important note from previous research that full spin-off likely decreases the performance of Islamic banks after several years of spin-off. See following references: Al Arif M., et al., (2020) [Ref-4] Trinugroho I, et al., 2021 [Ref-5] Is the work clearly and accurately presented and does it cite the current literature? Yes Is the study design appropriate and is the work technically sound? Yes Are sufficient details of methods and analysis provided to allow replication by others? Yes If applicable, is the statistical analysis and its interpretation appropriate? Partly Are all the source data underlying the results available to ensure full reproducibility? Yes Are the conclusions drawn adequately supported by the results? Yes References 1. Warninda T, Ekaputra I, Rokhim R: Do Mudarabah and Musharakah financing impact Islamic Bank credit risk differently?. Research in International Business and Finance . 2019; 49 : 166-175 Publisher Full Text 2. Sutrisno, S., Widarjono, A., Mohamad, M.: Does Financing Diversification Improve Bank Risk? Evidence From Indonesian Islamic Rural Banks. International Journal of Economics and Finance Studies . 2023. Publisher Full Text 3. Widarjono A, Alam M, Rafik A, Afandi A, et al.: Nexus between competition, concentration and bank risk-taking in Indonesian Islamic banking. International Journal of Islamic and Middle Eastern Finance and Management . 2025. Publisher Full Text 4. Al Arif M, Mufraini M, Prabowo M: Market Structure, Spin-Off, and Efficiency: Evidence from Indonesian Islamic Banking Industry. Emerging Markets Finance and Trade . 2020; 56 (2): 329-337 Publisher Full Text 5. Trinugroho I, Santoso W, Irawanto R, Pamungkas P: Is spin-off policy an effective way to improve performance of Islamic banks? Evidence from Indonesia. Research in International Business and Finance . 2021; 56 . Publisher Full Text Competing Interests: No competing interests were disclosed. Reviewer Expertise: Islamic finance and banking I confirm that I have read this submission and believe that I have an appropriate level of expertise to confirm that it is of an acceptable scientific standard, however I have significant reservations, as outlined above. Close READ LESS CITE CITE HOW TO CITE THIS REPORT Widarjono A. Reviewer Report For: Influence of spin-off decision on financing risk: Empirical insight from Indonesian Islamic banks [version 3; peer review: 3 approved, 1 approved with reservations] . F1000Research 2025, 13 :1251 ( https://doi.org/10.5256/f1000research.176913.r372133 ) The direct URL for this report is: https://f1000research.com/articles/13-1251/v2#referee-response-372133 NOTE: it is important to ensure the information in square brackets after the title is included in all citations of this article. COPY CITATION DETAILS Report a concern Author Response 21 Apr 2025 Zulfikar Bagus Pambuko , Islamic Economics Law, Universitas Muhammadiyah Magelang, Magelang, Indonesia 21 Apr 2025 Author Response Dear Reviewer We would like to warmly thank you for reading our manuscript and your valuable comments which would substantially improve our paper. We have followed carefully all your comments ... Continue reading Dear Reviewer We would like to warmly thank you for reading our manuscript and your valuable comments which would substantially improve our paper. We have followed carefully all your comments in the preparation of the revised version of the paper. Our revisions are summarized below. Reviewer’s Suggestion 1: INTRODUCTION This study investigates the effect of the spin-off on NPF. The spin-off policy is a policy to improve the performance of Islamic banks in Indonesia. However, the author has not explained why NPF is used as a measure of the success of the spin-off policy. It needs to be explained why NPF is a serious problem in Islamic banking in Indonesia so that this spin-off policy can reduce financing risk. Authors’ response : We have added information at the end of the introduction with the following narrative: “This is crucial given the pivotal role of financing risk management in impacting profitability, financing capacity, and overall financial stability (Pratami et al., 2023; Sriyana, 2015), where spin-offs hold the potential to mitigate such risks.” Reviewer’s Suggestion 2: LITERATURE REVIEW Islamic bank financing is different from conventional bank financing. Islamic financing is broadly categorized as profit-loss sharing (PLS) financing and non-profit-sharing financing. PLS financings are subject to asymmetric information and moral hazard. As a result, PLS financing likely increases NPF. In this section, authors conduct the literature review regarding NPF but authors fail to address the impact of types of financing in Islamic banks on NPF. For example, see the following references : Warninda T., et al., (2019) [Ref-1] Sutrisno, S. et al., (2023) [Ref-2]. Authors’ response : Thank you for the positive feedback. We have added literature with the following narrative. “Furthermore, a high concentration of financing has been shown to negatively impact Non-Performing Financing (NPF) (Sutrisno et al., 2023). This underscores the necessity for a comprehensive understanding of the distinct risk profiles associated with various Islamic financing instruments in effective credit risk management. For instance, Warninda et al. (2019) found that, contrary to some assumptions, Mudarabah financing is not inherently riskier than Musharakah financing.” Reviewer’s Suggestion 3: METHOD The difference and system GMM are a family of dynamic panel regression. The author must perform the robustness test with another estimation method. The author can employ static panel regression considering the number of banks is small (35 banks) while GMM requires a large number of banks. Authors’ response : Thank you for your valuable feedback. We will certainly incorporate these suggestions into our future research. However, within the context of this current research, the progression from difference GMM estimation to system GMM is already considered part of the robustness check process. This is because the nature of a robustness check is to test whether the main results of an analysis remain consistent and not solely dependent on a single analytical approach, thus enhancing their reliability and generalizability. On the other hand, there are fundamental differences between the two estimations: difference GMM uses first differences to eliminate fixed effects, whereas system GMM combines instruments from both first differences and levels, allowing it to capture more of the variability in the data. Reviewer’s Suggestion 4: RESULT AND DISCUSSION Authors need to perform some robustness tests: 1. Changing variable of interest There is no single measure to calculate Islamic bank risk. To get robust results, the author needs to change the variable of interest. Financing loss provision (FLP) is an alternative measure of financing risk. For example, see the following reference: Widarjono A., et al., (2025) [Ref-3] 2. Changing estimation method Considering that the number of small banks is 35, the author needs to estimate the model with static panel regression. Authors’ response : Thank you for your valuable feedback. We will certainly incorporate these suggestions into our future research. However, within the context of this current research, the progression from difference GMM estimation to system GMM is already considered part of the robustness check process. This is because the nature of a robustness check is to test whether the main results of an analysis remain consistent and not solely dependent on a single analytical approach, thus enhancing their reliability and generalizability. On the other hand, there are fundamental differences between the two estimations: difference GMM uses first differences to eliminate fixed effects, whereas system GMM combines instruments from both first differences and levels, allowing it to capture more of the variability in the data. Reviewer’s Suggestion 5: CONCLUSION In the conclusions, it is said that the spin-off policy is mandatory for every Islamic bank window. However, there is an important note from previous research that full spin-off likely decreases the performance of Islamic banks after several years of spin-off. See following references: Al Arif M., et al., (2020) [Ref-4] Trinugroho I, et al., 2021 [Ref-5] Authors’ responses : Thank you for the feedback. It is true that several empirical studies reveal a decline in performance after spin-offs. However, from the perspective of financing risk management, we consider this policy to be viable. Moreover, with the issuance of the amendment to Law No. 21 of 2008 into Law No. 4 of 2023, which extends this policy, it increasingly indicates that this policy is not unfavorable. Nevertheless, we are refining the narrative in the conclusion as follows: “Consequently, the implementation of a spin-off policy represents a viable approach. This is further supported by the amendment of Law No. 21/2008 to Law No. 4/2023, which continues to accommodate spin-offs as a policy to foster the growth and contribution of Islamic banking to the national economy.” Dear Reviewer We would like to warmly thank you for reading our manuscript and your valuable comments which would substantially improve our paper. We have followed carefully all your comments in the preparation of the revised version of the paper. Our revisions are summarized below. Reviewer’s Suggestion 1: INTRODUCTION This study investigates the effect of the spin-off on NPF. The spin-off policy is a policy to improve the performance of Islamic banks in Indonesia. However, the author has not explained why NPF is used as a measure of the success of the spin-off policy. It needs to be explained why NPF is a serious problem in Islamic banking in Indonesia so that this spin-off policy can reduce financing risk. Authors’ response : We have added information at the end of the introduction with the following narrative: “This is crucial given the pivotal role of financing risk management in impacting profitability, financing capacity, and overall financial stability (Pratami et al., 2023; Sriyana, 2015), where spin-offs hold the potential to mitigate such risks.” Reviewer’s Suggestion 2: LITERATURE REVIEW Islamic bank financing is different from conventional bank financing. Islamic financing is broadly categorized as profit-loss sharing (PLS) financing and non-profit-sharing financing. PLS financings are subject to asymmetric information and moral hazard. As a result, PLS financing likely increases NPF. In this section, authors conduct the literature review regarding NPF but authors fail to address the impact of types of financing in Islamic banks on NPF. For example, see the following references : Warninda T., et al., (2019) [Ref-1] Sutrisno, S. et al., (2023) [Ref-2]. Authors’ response : Thank you for the positive feedback. We have added literature with the following narrative. “Furthermore, a high concentration of financing has been shown to negatively impact Non-Performing Financing (NPF) (Sutrisno et al., 2023). This underscores the necessity for a comprehensive understanding of the distinct risk profiles associated with various Islamic financing instruments in effective credit risk management. For instance, Warninda et al. (2019) found that, contrary to some assumptions, Mudarabah financing is not inherently riskier than Musharakah financing.” Reviewer’s Suggestion 3: METHOD The difference and system GMM are a family of dynamic panel regression. The author must perform the robustness test with another estimation method. The author can employ static panel regression considering the number of banks is small (35 banks) while GMM requires a large number of banks. Authors’ response : Thank you for your valuable feedback. We will certainly incorporate these suggestions into our future research. However, within the context of this current research, the progression from difference GMM estimation to system GMM is already considered part of the robustness check process. This is because the nature of a robustness check is to test whether the main results of an analysis remain consistent and not solely dependent on a single analytical approach, thus enhancing their reliability and generalizability. On the other hand, there are fundamental differences between the two estimations: difference GMM uses first differences to eliminate fixed effects, whereas system GMM combines instruments from both first differences and levels, allowing it to capture more of the variability in the data. Reviewer’s Suggestion 4: RESULT AND DISCUSSION Authors need to perform some robustness tests: 1. Changing variable of interest There is no single measure to calculate Islamic bank risk. To get robust results, the author needs to change the variable of interest. Financing loss provision (FLP) is an alternative measure of financing risk. For example, see the following reference: Widarjono A., et al., (2025) [Ref-3] 2. Changing estimation method Considering that the number of small banks is 35, the author needs to estimate the model with static panel regression. Authors’ response : Thank you for your valuable feedback. We will certainly incorporate these suggestions into our future research. However, within the context of this current research, the progression from difference GMM estimation to system GMM is already considered part of the robustness check process. This is because the nature of a robustness check is to test whether the main results of an analysis remain consistent and not solely dependent on a single analytical approach, thus enhancing their reliability and generalizability. On the other hand, there are fundamental differences between the two estimations: difference GMM uses first differences to eliminate fixed effects, whereas system GMM combines instruments from both first differences and levels, allowing it to capture more of the variability in the data. Reviewer’s Suggestion 5: CONCLUSION In the conclusions, it is said that the spin-off policy is mandatory for every Islamic bank window. However, there is an important note from previous research that full spin-off likely decreases the performance of Islamic banks after several years of spin-off. See following references: Al Arif M., et al., (2020) [Ref-4] Trinugroho I, et al., 2021 [Ref-5] Authors’ responses : Thank you for the feedback. It is true that several empirical studies reveal a decline in performance after spin-offs. However, from the perspective of financing risk management, we consider this policy to be viable. Moreover, with the issuance of the amendment to Law No. 21 of 2008 into Law No. 4 of 2023, which extends this policy, it increasingly indicates that this policy is not unfavorable. Nevertheless, we are refining the narrative in the conclusion as follows: “Consequently, the implementation of a spin-off policy represents a viable approach. This is further supported by the amendment of Law No. 21/2008 to Law No. 4/2023, which continues to accommodate spin-offs as a policy to foster the growth and contribution of Islamic banking to the national economy.” Competing Interests: none Close Report a concern Respond or Comment COMMENTS ON THIS REPORT Author Response 21 Apr 2025 Zulfikar Bagus Pambuko , Islamic Economics Law, Universitas Muhammadiyah Magelang, Magelang, Indonesia 21 Apr 2025 Author Response Dear Reviewer We would like to warmly thank you for reading our manuscript and your valuable comments which would substantially improve our paper. We have followed carefully all your comments ... Continue reading Dear Reviewer We would like to warmly thank you for reading our manuscript and your valuable comments which would substantially improve our paper. We have followed carefully all your comments in the preparation of the revised version of the paper. Our revisions are summarized below. Reviewer’s Suggestion 1: INTRODUCTION This study investigates the effect of the spin-off on NPF. The spin-off policy is a policy to improve the performance of Islamic banks in Indonesia. However, the author has not explained why NPF is used as a measure of the success of the spin-off policy. It needs to be explained why NPF is a serious problem in Islamic banking in Indonesia so that this spin-off policy can reduce financing risk. Authors’ response : We have added information at the end of the introduction with the following narrative: “This is crucial given the pivotal role of financing risk management in impacting profitability, financing capacity, and overall financial stability (Pratami et al., 2023; Sriyana, 2015), where spin-offs hold the potential to mitigate such risks.” Reviewer’s Suggestion 2: LITERATURE REVIEW Islamic bank financing is different from conventional bank financing. Islamic financing is broadly categorized as profit-loss sharing (PLS) financing and non-profit-sharing financing. PLS financings are subject to asymmetric information and moral hazard. As a result, PLS financing likely increases NPF. In this section, authors conduct the literature review regarding NPF but authors fail to address the impact of types of financing in Islamic banks on NPF. For example, see the following references : Warninda T., et al., (2019) [Ref-1] Sutrisno, S. et al., (2023) [Ref-2]. Authors’ response : Thank you for the positive feedback. We have added literature with the following narrative. “Furthermore, a high concentration of financing has been shown to negatively impact Non-Performing Financing (NPF) (Sutrisno et al., 2023). This underscores the necessity for a comprehensive understanding of the distinct risk profiles associated with various Islamic financing instruments in effective credit risk management. For instance, Warninda et al. (2019) found that, contrary to some assumptions, Mudarabah financing is not inherently riskier than Musharakah financing.” Reviewer’s Suggestion 3: METHOD The difference and system GMM are a family of dynamic panel regression. The author must perform the robustness test with another estimation method. The author can employ static panel regression considering the number of banks is small (35 banks) while GMM requires a large number of banks. Authors’ response : Thank you for your valuable feedback. We will certainly incorporate these suggestions into our future research. However, within the context of this current research, the progression from difference GMM estimation to system GMM is already considered part of the robustness check process. This is because the nature of a robustness check is to test whether the main results of an analysis remain consistent and not solely dependent on a single analytical approach, thus enhancing their reliability and generalizability. On the other hand, there are fundamental differences between the two estimations: difference GMM uses first differences to eliminate fixed effects, whereas system GMM combines instruments from both first differences and levels, allowing it to capture more of the variability in the data. Reviewer’s Suggestion 4: RESULT AND DISCUSSION Authors need to perform some robustness tests: 1. Changing variable of interest There is no single measure to calculate Islamic bank risk. To get robust results, the author needs to change the variable of interest. Financing loss provision (FLP) is an alternative measure of financing risk. For example, see the following reference: Widarjono A., et al., (2025) [Ref-3] 2. Changing estimation method Considering that the number of small banks is 35, the author needs to estimate the model with static panel regression. Authors’ response : Thank you for your valuable feedback. We will certainly incorporate these suggestions into our future research. However, within the context of this current research, the progression from difference GMM estimation to system GMM is already considered part of the robustness check process. This is because the nature of a robustness check is to test whether the main results of an analysis remain consistent and not solely dependent on a single analytical approach, thus enhancing their reliability and generalizability. On the other hand, there are fundamental differences between the two estimations: difference GMM uses first differences to eliminate fixed effects, whereas system GMM combines instruments from both first differences and levels, allowing it to capture more of the variability in the data. Reviewer’s Suggestion 5: CONCLUSION In the conclusions, it is said that the spin-off policy is mandatory for every Islamic bank window. However, there is an important note from previous research that full spin-off likely decreases the performance of Islamic banks after several years of spin-off. See following references: Al Arif M., et al., (2020) [Ref-4] Trinugroho I, et al., 2021 [Ref-5] Authors’ responses : Thank you for the feedback. It is true that several empirical studies reveal a decline in performance after spin-offs. However, from the perspective of financing risk management, we consider this policy to be viable. Moreover, with the issuance of the amendment to Law No. 21 of 2008 into Law No. 4 of 2023, which extends this policy, it increasingly indicates that this policy is not unfavorable. Nevertheless, we are refining the narrative in the conclusion as follows: “Consequently, the implementation of a spin-off policy represents a viable approach. This is further supported by the amendment of Law No. 21/2008 to Law No. 4/2023, which continues to accommodate spin-offs as a policy to foster the growth and contribution of Islamic banking to the national economy.” Dear Reviewer We would like to warmly thank you for reading our manuscript and your valuable comments which would substantially improve our paper. We have followed carefully all your comments in the preparation of the revised version of the paper. Our revisions are summarized below. Reviewer’s Suggestion 1: INTRODUCTION This study investigates the effect of the spin-off on NPF. The spin-off policy is a policy to improve the performance of Islamic banks in Indonesia. However, the author has not explained why NPF is used as a measure of the success of the spin-off policy. It needs to be explained why NPF is a serious problem in Islamic banking in Indonesia so that this spin-off policy can reduce financing risk. Authors’ response : We have added information at the end of the introduction with the following narrative: “This is crucial given the pivotal role of financing risk management in impacting profitability, financing capacity, and overall financial stability (Pratami et al., 2023; Sriyana, 2015), where spin-offs hold the potential to mitigate such risks.” Reviewer’s Suggestion 2: LITERATURE REVIEW Islamic bank financing is different from conventional bank financing. Islamic financing is broadly categorized as profit-loss sharing (PLS) financing and non-profit-sharing financing. PLS financings are subject to asymmetric information and moral hazard. As a result, PLS financing likely increases NPF. In this section, authors conduct the literature review regarding NPF but authors fail to address the impact of types of financing in Islamic banks on NPF. For example, see the following references : Warninda T., et al., (2019) [Ref-1] Sutrisno, S. et al., (2023) [Ref-2]. Authors’ response : Thank you for the positive feedback. We have added literature with the following narrative. “Furthermore, a high concentration of financing has been shown to negatively impact Non-Performing Financing (NPF) (Sutrisno et al., 2023). This underscores the necessity for a comprehensive understanding of the distinct risk profiles associated with various Islamic financing instruments in effective credit risk management. For instance, Warninda et al. (2019) found that, contrary to some assumptions, Mudarabah financing is not inherently riskier than Musharakah financing.” Reviewer’s Suggestion 3: METHOD The difference and system GMM are a family of dynamic panel regression. The author must perform the robustness test with another estimation method. The author can employ static panel regression considering the number of banks is small (35 banks) while GMM requires a large number of banks. Authors’ response : Thank you for your valuable feedback. We will certainly incorporate these suggestions into our future research. However, within the context of this current research, the progression from difference GMM estimation to system GMM is already considered part of the robustness check process. This is because the nature of a robustness check is to test whether the main results of an analysis remain consistent and not solely dependent on a single analytical approach, thus enhancing their reliability and generalizability. On the other hand, there are fundamental differences between the two estimations: difference GMM uses first differences to eliminate fixed effects, whereas system GMM combines instruments from both first differences and levels, allowing it to capture more of the variability in the data. Reviewer’s Suggestion 4: RESULT AND DISCUSSION Authors need to perform some robustness tests: 1. Changing variable of interest There is no single measure to calculate Islamic bank risk. To get robust results, the author needs to change the variable of interest. Financing loss provision (FLP) is an alternative measure of financing risk. For example, see the following reference: Widarjono A., et al., (2025) [Ref-3] 2. Changing estimation method Considering that the number of small banks is 35, the author needs to estimate the model with static panel regression. Authors’ response : Thank you for your valuable feedback. We will certainly incorporate these suggestions into our future research. However, within the context of this current research, the progression from difference GMM estimation to system GMM is already considered part of the robustness check process. This is because the nature of a robustness check is to test whether the main results of an analysis remain consistent and not solely dependent on a single analytical approach, thus enhancing their reliability and generalizability. On the other hand, there are fundamental differences between the two estimations: difference GMM uses first differences to eliminate fixed effects, whereas system GMM combines instruments from both first differences and levels, allowing it to capture more of the variability in the data. Reviewer’s Suggestion 5: CONCLUSION In the conclusions, it is said that the spin-off policy is mandatory for every Islamic bank window. However, there is an important note from previous research that full spin-off likely decreases the performance of Islamic banks after several years of spin-off. See following references: Al Arif M., et al., (2020) [Ref-4] Trinugroho I, et al., 2021 [Ref-5] Authors’ responses : Thank you for the feedback. It is true that several empirical studies reveal a decline in performance after spin-offs. However, from the perspective of financing risk management, we consider this policy to be viable. Moreover, with the issuance of the amendment to Law No. 21 of 2008 into Law No. 4 of 2023, which extends this policy, it increasingly indicates that this policy is not unfavorable. Nevertheless, we are refining the narrative in the conclusion as follows: “Consequently, the implementation of a spin-off policy represents a viable approach. This is further supported by the amendment of Law No. 21/2008 to Law No. 4/2023, which continues to accommodate spin-offs as a policy to foster the growth and contribution of Islamic banking to the national economy.” Competing Interests: none Close Report a concern COMMENT ON THIS REPORT Views 0 Cite How to cite this report: Suprayitno E. Reviewer Report For: Influence of spin-off decision on financing risk: Empirical insight from Indonesian Islamic banks [version 3; peer review: 3 approved, 1 approved with reservations] . F1000Research 2025, 13 :1251 ( https://doi.org/10.5256/f1000research.176913.r372130 ) The direct URL for this report is: https://f1000research.com/articles/13-1251/v2#referee-response-372130 NOTE: it is important to ensure the information in square brackets after the title is included in this citation. Close Copy Citation Details Reviewer Report 12 Apr 2025 Eko Suprayitno , Universitas Islam Negeri Maulana Malik Ibrahim Malang, Malang, East Java, Indonesia Approved with Reservations VIEWS 0 https://doi.org/10.5256/f1000research.176913.r372130 Abstract: 1. Should provide a more concise summary of policy implications. 2. Explain the role of GMM estimation more clearly. Introduction: ��The justification for financing risk as the main focus should be stronger. ... Continue reading READ ALL Abstract: 1. Should provide a more concise summary of policy implications. 2. Explain the role of GMM estimation more clearly. Introduction: ��The justification for financing risk as the main focus should be stronger. ��The introduction is well-structured, presenting a logical flow from the importance of Islamic banking to the research gap. ��It could benefit from a stronger linkage between spin-offs and financing risk earlier in the section. �� Regulatory changes should be introduced earlier for better framing. Literature Review The literature review covers a broad range of studies, but it does not deeply analyze conflicting findings from past research. It could benefit from categorizing past studies (e.g., studies on spin-offs, studies on financing risk, and studies on policy implications). Needs a conceptual framework diagram to show research positioning. Could analyze contradictions in past research on non-performing financing (NPF). The section needs a conceptual framework diagram to clarify key variables and hypotheses. Methods �� The methodology is rigorous and well-explained, but it assumes familiarity with GMM among readers. ��The rationale for choosing specific macroeconomic variables should be expanded. ��Justify why inflation and oil prices were included as control variables. ��Data collection methods are clearly documented, but more details on handling missing data would strengthen credibility. More details on how missing data was handled would strengthen credibility. Results and Discussion �� The interaction term (Spin-off × Size) needs a clearer interpretation. �� Managerial and policy implications should be expanded beyond statistical results. ��The empirical results are robust and align with previous studies, but some explanations are too technical for non-expert readers. ��The discussion connects well with the literature, but it could further explain why larger spin-off banks face higher risks. ��Clarification of Interaction Term (Spin-off × Size): The interpretation of why larger spin-off banks face higher risk needs more depth. ��Policy recommendations could be better integrated into this section rather than leaving them mostly in the conclusion. Conclusion �� Should differentiate theoretical contributions from practical implications. �� Future research suggestions are too general and need more specific directions. References �� Should add more recent studies (post-2022). �� Include cross-country comparisons to strengthen global relevance. Is the work clearly and accurately presented and does it cite the current literature? Yes Is the study design appropriate and is the work technically sound? Partly Are sufficient details of methods and analysis provided to allow replication by others? Partly If applicable, is the statistical analysis and its interpretation appropriate? Partly Are all the source data underlying the results available to ensure full reproducibility? Partly Are the conclusions drawn adequately supported by the results? Partly Competing Interests: No competing interests were disclosed. Reviewer Expertise: Islamic banking, Islamic macroeconomics, Islamic finance I confirm that I have read this submission and believe that I have an appropriate level of expertise to confirm that it is of an acceptable scientific standard, however I have significant reservations, as outlined above. Close READ LESS CITE CITE HOW TO CITE THIS REPORT Suprayitno E. Reviewer Report For: Influence of spin-off decision on financing risk: Empirical insight from Indonesian Islamic banks [version 3; peer review: 3 approved, 1 approved with reservations] . F1000Research 2025, 13 :1251 ( https://doi.org/10.5256/f1000research.176913.r372130 ) The direct URL for this report is: https://f1000research.com/articles/13-1251/v2#referee-response-372130 NOTE: it is important to ensure the information in square brackets after the title is included in all citations of this article. COPY CITATION DETAILS Report a concern Author Response 10 May 2025 Zulfikar Bagus Pambuko , Islamic Economics Law, Universitas Muhammadiyah Magelang, Magelang, Indonesia 10 May 2025 Author Response Dear Reviewer We would like to warmly thank you for reading our manuscript and your valuable comments which would substantially improve our paper. We have followed carefully all your comments ... Continue reading Dear Reviewer We would like to warmly thank you for reading our manuscript and your valuable comments which would substantially improve our paper. We have followed carefully all your comments in the preparation of the revised version of the paper. Our revisions are summarized below. Reviewer’s Suggestion 1: Abstract: 1. Should provide a more concise summary of policy implications. Authors’ Response : Improvements have been made to the conclusion sections. “… Therefore, spin-off policies for Islamic banks appear to be a viable strategy, as independence fosters enhanced risk sensitivity.” 2. Explain the role of GMM estimation more clearly. Authors’ Response : Improvements have been made to the methods sections. “… using a dynamic panel model with the Generalized Method of Moments (GMM) to overcome potential endogeneity issues that might bias the results.” Reviewer’s Suggestion 2: Introduction: The justification for financing risk as the main focus should be stronger. Authors’ Response : We have added information to last paragraph “This is crucial given the pivotal role of financing risk management in impacting profitability, financing capacity, and overall financial stability (Pratami et al., 2023; Sriyana, 2015), where spin-offs hold the potential to mitigate such risks.” The introduction is well-structured, presenting a logical flow from the importance of Islamic banking to the research gap. Authors’ Response : Thank you It could benefit from a stronger linkage between spin-offs and financing risk earlier in the section. Authors’ Response : We have added information to last paragraph “This is crucial given the pivotal role of financing risk management in impacting profitability, financing capacity, and overall financial stability (Pratami et al., 2023; Sriyana, 2015), where spin-offs hold the potential to mitigate such risks.” Regulatory changes should be introduced earlier for better framing. Authors’ Response : We have added information to paragraph 2 “The growing importance of this matter is underscored by the fact that the amendment of Law No. 21/2008 into Law No. 4/2023 retains spin-off as a key strategy for the acceleration of Islamic banking in Indonesia, albeit with the necessity of proper alignment.” Reviewer’s Suggestion 3: Literature Review The literature review covers a broad range of studies, but it does not deeply analyze conflicting findings from past research. It could benefit from categorizing past studies (e.g., studies on spin-offs, studies on financing risk, and studies on policy implications). Needs a conceptual framework diagram to show research positioning. Could analyze contradictions in past research on non-performing financing (NPF). The section needs a conceptual framework diagram to clarify key variables and hypotheses. Authors’ response : We have added a new subsection (conceptual framework) to the literature review that addresses all the feedback as follows "Conceptual Framework Although numerous factors have been identified as influencing financing risk, the findings across studies tend to show inconsistencies. These discrepancies may be attributed to differences in research settings, observation periods, and data analysis techniques. Nevertheless, this study focuses on presenting findings that are theoretically grounded and relevant to the existing literature. In line with this, the main objective of this research is to examine the impact of the spin-off decision on financing risk in Islamic banking in Indonesia—an aspect that has not been previously explored. The study also incorporates control variables, including internal bank conditions (bank size and market share) and macroeconomic indicators (inflation, economic growth, and oil price). The conceptual framework is illustrated in Figure 1, and the hypotheses are formulated as follows: H 1 : The spin-off decision has a negative effect on financing risk H 2 : Bank size has a positive effect on financing risk H 3 : Market share has a positive effect on financing risk H 4 : Inflation has a positive effect on financing risk H 5 : Economic growth has a negative effect on financing risk H 6 : Oil price has a negative effect on financing risk" Reviewer’s Suggestion 4: Methods The methodology is rigorous and well-explained, but it assumes familiarity with GMM among readers. The rationale for choosing specific macroeconomic variables should be expanded. Justify why inflation and oil prices were included as control variables. Data collection methods are clearly documented, but more details on handling missing data would strengthen credibility. More details on how missing data was handled would strengthen credibility. Authors’ response: Thank you for your feedback. We have provided a relatively detailed explanation regarding the use of GMM, covering its advantages, lag selection, instrument validity, etc. Furthermore, we offer the following additional clarification: “This approach was adopted to mitigate several underlying problems commonly encountered in panel data, specifically endogeneity, heteroskedasticity, and autocorrelation.” Furthermore, the selection of inflation and economic growth as macroeconomic variables was based on their common usage in the context of Islamic banking. Meanwhile, oil price was chosen because this variable is very rarely associated with Islamic banking performance, including financing risk. Subsequently, incomplete data were excluded from the analysis, leading us to employ an unbalanced panel data model. Consequently, only observations containing complete data were included in the estimation. This can be observed in Table 2 where the total data amounts to 1032 observations, while the final estimation in Table 4 only utilizes 948 observations. Reviewer’s Suggestion 5: Results and Discussion The interaction term (Spin-off × Size) needs a clearer interpretation. Managerial and policy implications should be expanded beyond statistical results. The empirical results are robust and align with previous studies, but some explanations are too technical for non-expert readers. The discussion connects well with the literature, but it could further explain why larger spin-off banks face higher risks. Clarification of Interaction Term (Spin-off × Size): The interpretation of why larger spin-off banks face higher risk needs more depth. Policy recommendations could be better integrated into this section rather than leaving them mostly in the conclusion. Authors’ response : We have refined the Discussion section to enhance its accessibility for a broader audience, including non-expert readers. Specifically, we have incorporated additional explanations to clarify the impact of the interaction variable (as detailed in the fifth paragraph) and macroeconomic factors (the seventh paragraph) on financing risk. This was done by providing more intuitive interpretations of the statistical findings, drawing analogies to real-world scenarios, and simplifying complex economic relationships without sacrificing the rigor of our analysis. “This is further supported by the significant positive effect of the interaction variable (spinoff*size), indicating that larger Islamic banks undergoing spin-offs face elevated financing risk compared to smaller ones. As highlighted by Trinugroho et al., (2021), the multifaceted nature of financing contracts in Islamic banking substantially elevates the risk of non-performing financing. Consequently, substantial asset expansion and spin-off implementation carry inherent risks that can be amplified by insufficient managerial readiness, making it harder to maintain financing quality.” “On the other hand, economic growth and inflation exhibit inconsistent results across different model specifications. Inflation generally exerts a positive influence on financing risk, as observed in models 2, 6, and 8. This finding aligns with previous studies, which suggests that inflation can reduce purchasing power, leading to increased loan defaults (Awdeh et al., 2024; Patiu & Eleazar, 2024). However, the impact of economic growth on financing risk is more nuanced, with negative effects observed in the difference GMM estimation and positive effects in the system GMM estimation. This discrepancy might be attributed to the non-linear relationship between economic growth and NPF. The difference GMM method may suggest short-term effects, potentially indicating that during periods of economic expansion, borrowers exhibit a higher propensity for timely repayment. Conversely, the system GMM method, which is considered to provide more robust estimates overall, may reveal longer-term effects. Over extended periods of strong economic growth, banks may exhibit increased lending appetite and potentially relax credit standards, leading to a higher incidence of future repayment difficulties (Castro, 2013; Huizinga & Laeven, 2019; Mongid et al., 2023). Furthermore, this divergence in results may be explained by the finite sample bias in difference GMM, which relies solely on the differenced data, discarding level information.” We acknowledge the reviewer's valuable suggestion to elaborate on policy recommendations within the discussion section to provide immediate context and justification. However, we have made a deliberate decision to retain the policy recommendations in the conclusion section. Our rationale for this placement is to ensure that the recommendations are presented as a direct and concise culmination of the entire analysis. By positioning them at the end, we aim to offer policymakers and other readers a readily accessible summary of the key actionable insights derived from our research. This structure allows readers to first grasp the full scope of our findings and their implications before focusing on the specific policy implications. We believe this approach enhances the clarity and impact of our recommendations as a direct takeaway from the study's overall conclusions. Reviewer’s Suggestion 6: Conclusion Should differentiate theoretical contributions from practical implications. Authors’ response : We have refined the narrative, separating the empirical and theoretical contributions as follows: “Empirically, our findings reveal that Islamic windows carry a higher risk compared to full-fledged Islamic banks that undergo spin-offs. We also discover that spin-off Islamic banks with larger assets are more exposed to risk than those with smaller assets. This notice is supported by the regression that financing risk increases with the growth of assets and market share. Theoretically, this research contributes to the broader understanding of Islamic banking dynamics by providing empirical evidence on the risk implications of organizational structure transformation. Specifically, it highlights the potential risk reduction associated with the increased autonomy and focused operational framework of independent Islamic banks post-spin-off.” Future research suggestions are too general and need more specific directions. Authors’ response : We have refined the narrative as follows: “Furthermore, incorporating a broader range of internal (such as market concentration, market power, types of financing, operating expense ratio, etc) and external variables (exchange rate, money supply, etc), as well as expanding the analysis to include Islamic banks in countries that have implemented spin-offs, such as Saudi Arabia, Pakistan, Kuwait, etc., would provide a more comprehensive understanding of the phenomenon.” Reviewer’s Suggestion 7: References Should add more recent studies (post-2022). Include cross-country comparisons to strengthen global relevance. Authors’ response : Thank you for your constructive feedback. We have now incorporated additional relevant references, including cross-country studies and publications from 2022 onwards, to further strengthen the theoretical grounding and contextual relevance of our findings. Addou, K. I., Boulanouar, Z., Anwer, Z., Bensghir, A., & Ramadilli Mohammad, S. M. (2024). The impact of Basel III regulations on solvency and credit risk-taking behavior of Islamic banks. International Journal of Islamic and Middle Eastern Finance and Management , 17 (5), 915–935. https://doi.org/10.1108/IMEFM-05-2024-0248 Nasir, M. S., Oktaviani, Y., & Andriyani, N. (2022). Determinants of Non-Performing Loans and Non-Performing Financing level: Evidence in Indonesia 2008-2021. Banks and Bank Systems , 17 (4), 116–128. https://doi.org/10.21511/bbs.17(4).2022.10 Pratami, A., Afandi, A., Sriyana, J., & Feriyanto, N. (2023). The Role of Financing Models and Credit Risk on Islamic Bank Stability. Cuadernos de Economía , 46 (131), 43–53. Shah, S. A. A., Fianto, B. A., Sheikh, A. E., Sukmana, R., Kayani, U. N., & Bin Ridzuan, A. R. (2023). Role of fintech in credit risk management: an analysis of Islamic banks in Indonesia, Malaysia, UAE and Pakistan. Journal of Science and Technology Policy Management , 14 (6), 1128–1154. https://doi.org/10.1108/JSTPM-06-2022-0104 Sriyana, J. (2015). Islamic banks’ profitability amid the competitive financing in Indonesia. International Journal of Applied Business and Economic Research , 13 (4), 1695–1710. Sutrisno, Widarjono, A., & Mohamad, M. (2023). Does Financing Diversification Improve Bank Risk? Evidence From Indonesian Islamic Rural Banks. International Journal of Economics and Finance Studies , 15 (4), 103–124. https://doi.org/10.34109/ijefs.202315406 Warninda, T. D., Ekaputra, I. A., & Rokhim, R. (2019). Do Mudarabah and Musharakah financing impact Islamic Bank credit risk differently? Research in International Business and Finance , 49 , 166–175. https://doi.org/10.1016/j.ribaf.2019.03.002 Dear Reviewer We would like to warmly thank you for reading our manuscript and your valuable comments which would substantially improve our paper. We have followed carefully all your comments in the preparation of the revised version of the paper. Our revisions are summarized below. Reviewer’s Suggestion 1: Abstract: 1. Should provide a more concise summary of policy implications. Authors’ Response : Improvements have been made to the conclusion sections. “… Therefore, spin-off policies for Islamic banks appear to be a viable strategy, as independence fosters enhanced risk sensitivity.” 2. Explain the role of GMM estimation more clearly. Authors’ Response : Improvements have been made to the methods sections. “… using a dynamic panel model with the Generalized Method of Moments (GMM) to overcome potential endogeneity issues that might bias the results.” Reviewer’s Suggestion 2: Introduction: The justification for financing risk as the main focus should be stronger. Authors’ Response : We have added information to last paragraph “This is crucial given the pivotal role of financing risk management in impacting profitability, financing capacity, and overall financial stability (Pratami et al., 2023; Sriyana, 2015), where spin-offs hold the potential to mitigate such risks.” The introduction is well-structured, presenting a logical flow from the importance of Islamic banking to the research gap. Authors’ Response : Thank you It could benefit from a stronger linkage between spin-offs and financing risk earlier in the section. Authors’ Response : We have added information to last paragraph “This is crucial given the pivotal role of financing risk management in impacting profitability, financing capacity, and overall financial stability (Pratami et al., 2023; Sriyana, 2015), where spin-offs hold the potential to mitigate such risks.” Regulatory changes should be introduced earlier for better framing. Authors’ Response : We have added information to paragraph 2 “The growing importance of this matter is underscored by the fact that the amendment of Law No. 21/2008 into Law No. 4/2023 retains spin-off as a key strategy for the acceleration of Islamic banking in Indonesia, albeit with the necessity of proper alignment.” Reviewer’s Suggestion 3: Literature Review The literature review covers a broad range of studies, but it does not deeply analyze conflicting findings from past research. It could benefit from categorizing past studies (e.g., studies on spin-offs, studies on financing risk, and studies on policy implications). Needs a conceptual framework diagram to show research positioning. Could analyze contradictions in past research on non-performing financing (NPF). The section needs a conceptual framework diagram to clarify key variables and hypotheses. Authors’ response : We have added a new subsection (conceptual framework) to the literature review that addresses all the feedback as follows "Conceptual Framework Although numerous factors have been identified as influencing financing risk, the findings across studies tend to show inconsistencies. These discrepancies may be attributed to differences in research settings, observation periods, and data analysis techniques. Nevertheless, this study focuses on presenting findings that are theoretically grounded and relevant to the existing literature. In line with this, the main objective of this research is to examine the impact of the spin-off decision on financing risk in Islamic banking in Indonesia—an aspect that has not been previously explored. The study also incorporates control variables, including internal bank conditions (bank size and market share) and macroeconomic indicators (inflation, economic growth, and oil price). The conceptual framework is illustrated in Figure 1, and the hypotheses are formulated as follows: H 1 : The spin-off decision has a negative effect on financing risk H 2 : Bank size has a positive effect on financing risk H 3 : Market share has a positive effect on financing risk H 4 : Inflation has a positive effect on financing risk H 5 : Economic growth has a negative effect on financing risk H 6 : Oil price has a negative effect on financing risk" Reviewer’s Suggestion 4: Methods The methodology is rigorous and well-explained, but it assumes familiarity with GMM among readers. The rationale for choosing specific macroeconomic variables should be expanded. Justify why inflation and oil prices were included as control variables. Data collection methods are clearly documented, but more details on handling missing data would strengthen credibility. More details on how missing data was handled would strengthen credibility. Authors’ response: Thank you for your feedback. We have provided a relatively detailed explanation regarding the use of GMM, covering its advantages, lag selection, instrument validity, etc. Furthermore, we offer the following additional clarification: “This approach was adopted to mitigate several underlying problems commonly encountered in panel data, specifically endogeneity, heteroskedasticity, and autocorrelation.” Furthermore, the selection of inflation and economic growth as macroeconomic variables was based on their common usage in the context of Islamic banking. Meanwhile, oil price was chosen because this variable is very rarely associated with Islamic banking performance, including financing risk. Subsequently, incomplete data were excluded from the analysis, leading us to employ an unbalanced panel data model. Consequently, only observations containing complete data were included in the estimation. This can be observed in Table 2 where the total data amounts to 1032 observations, while the final estimation in Table 4 only utilizes 948 observations. Reviewer’s Suggestion 5: Results and Discussion The interaction term (Spin-off × Size) needs a clearer interpretation. Managerial and policy implications should be expanded beyond statistical results. The empirical results are robust and align with previous studies, but some explanations are too technical for non-expert readers. The discussion connects well with the literature, but it could further explain why larger spin-off banks face higher risks. Clarification of Interaction Term (Spin-off × Size): The interpretation of why larger spin-off banks face higher risk needs more depth. Policy recommendations could be better integrated into this section rather than leaving them mostly in the conclusion. Authors’ response : We have refined the Discussion section to enhance its accessibility for a broader audience, including non-expert readers. Specifically, we have incorporated additional explanations to clarify the impact of the interaction variable (as detailed in the fifth paragraph) and macroeconomic factors (the seventh paragraph) on financing risk. This was done by providing more intuitive interpretations of the statistical findings, drawing analogies to real-world scenarios, and simplifying complex economic relationships without sacrificing the rigor of our analysis. “This is further supported by the significant positive effect of the interaction variable (spinoff*size), indicating that larger Islamic banks undergoing spin-offs face elevated financing risk compared to smaller ones. As highlighted by Trinugroho et al., (2021), the multifaceted nature of financing contracts in Islamic banking substantially elevates the risk of non-performing financing. Consequently, substantial asset expansion and spin-off implementation carry inherent risks that can be amplified by insufficient managerial readiness, making it harder to maintain financing quality.” “On the other hand, economic growth and inflation exhibit inconsistent results across different model specifications. Inflation generally exerts a positive influence on financing risk, as observed in models 2, 6, and 8. This finding aligns with previous studies, which suggests that inflation can reduce purchasing power, leading to increased loan defaults (Awdeh et al., 2024; Patiu & Eleazar, 2024). However, the impact of economic growth on financing risk is more nuanced, with negative effects observed in the difference GMM estimation and positive effects in the system GMM estimation. This discrepancy might be attributed to the non-linear relationship between economic growth and NPF. The difference GMM method may suggest short-term effects, potentially indicating that during periods of economic expansion, borrowers exhibit a higher propensity for timely repayment. Conversely, the system GMM method, which is considered to provide more robust estimates overall, may reveal longer-term effects. Over extended periods of strong economic growth, banks may exhibit increased lending appetite and potentially relax credit standards, leading to a higher incidence of future repayment difficulties (Castro, 2013; Huizinga & Laeven, 2019; Mongid et al., 2023). Furthermore, this divergence in results may be explained by the finite sample bias in difference GMM, which relies solely on the differenced data, discarding level information.” We acknowledge the reviewer's valuable suggestion to elaborate on policy recommendations within the discussion section to provide immediate context and justification. However, we have made a deliberate decision to retain the policy recommendations in the conclusion section. Our rationale for this placement is to ensure that the recommendations are presented as a direct and concise culmination of the entire analysis. By positioning them at the end, we aim to offer policymakers and other readers a readily accessible summary of the key actionable insights derived from our research. This structure allows readers to first grasp the full scope of our findings and their implications before focusing on the specific policy implications. We believe this approach enhances the clarity and impact of our recommendations as a direct takeaway from the study's overall conclusions. Reviewer’s Suggestion 6: Conclusion Should differentiate theoretical contributions from practical implications. Authors’ response : We have refined the narrative, separating the empirical and theoretical contributions as follows: “Empirically, our findings reveal that Islamic windows carry a higher risk compared to full-fledged Islamic banks that undergo spin-offs. We also discover that spin-off Islamic banks with larger assets are more exposed to risk than those with smaller assets. This notice is supported by the regression that financing risk increases with the growth of assets and market share. Theoretically, this research contributes to the broader understanding of Islamic banking dynamics by providing empirical evidence on the risk implications of organizational structure transformation. Specifically, it highlights the potential risk reduction associated with the increased autonomy and focused operational framework of independent Islamic banks post-spin-off.” Future research suggestions are too general and need more specific directions. Authors’ response : We have refined the narrative as follows: “Furthermore, incorporating a broader range of internal (such as market concentration, market power, types of financing, operating expense ratio, etc) and external variables (exchange rate, money supply, etc), as well as expanding the analysis to include Islamic banks in countries that have implemented spin-offs, such as Saudi Arabia, Pakistan, Kuwait, etc., would provide a more comprehensive understanding of the phenomenon.” Reviewer’s Suggestion 7: References Should add more recent studies (post-2022). Include cross-country comparisons to strengthen global relevance. Authors’ response : Thank you for your constructive feedback. We have now incorporated additional relevant references, including cross-country studies and publications from 2022 onwards, to further strengthen the theoretical grounding and contextual relevance of our findings. Addou, K. I., Boulanouar, Z., Anwer, Z., Bensghir, A., & Ramadilli Mohammad, S. M. (2024). The impact of Basel III regulations on solvency and credit risk-taking behavior of Islamic banks. International Journal of Islamic and Middle Eastern Finance and Management , 17 (5), 915–935. https://doi.org/10.1108/IMEFM-05-2024-0248 Nasir, M. S., Oktaviani, Y., & Andriyani, N. (2022). Determinants of Non-Performing Loans and Non-Performing Financing level: Evidence in Indonesia 2008-2021. Banks and Bank Systems , 17 (4), 116–128. https://doi.org/10.21511/bbs.17(4).2022.10 Pratami, A., Afandi, A., Sriyana, J., & Feriyanto, N. (2023). The Role of Financing Models and Credit Risk on Islamic Bank Stability. Cuadernos de Economía , 46 (131), 43–53. Shah, S. A. A., Fianto, B. A., Sheikh, A. E., Sukmana, R., Kayani, U. N., & Bin Ridzuan, A. R. (2023). Role of fintech in credit risk management: an analysis of Islamic banks in Indonesia, Malaysia, UAE and Pakistan. Journal of Science and Technology Policy Management , 14 (6), 1128–1154. https://doi.org/10.1108/JSTPM-06-2022-0104 Sriyana, J. (2015). Islamic banks’ profitability amid the competitive financing in Indonesia. International Journal of Applied Business and Economic Research , 13 (4), 1695–1710. Sutrisno, Widarjono, A., & Mohamad, M. (2023). Does Financing Diversification Improve Bank Risk? Evidence From Indonesian Islamic Rural Banks. International Journal of Economics and Finance Studies , 15 (4), 103–124. https://doi.org/10.34109/ijefs.202315406 Warninda, T. D., Ekaputra, I. A., & Rokhim, R. (2019). Do Mudarabah and Musharakah financing impact Islamic Bank credit risk differently? Research in International Business and Finance , 49 , 166–175. https://doi.org/10.1016/j.ribaf.2019.03.002 Competing Interests: none Close Report a concern Respond or Comment COMMENTS ON THIS REPORT Author Response 10 May 2025 Zulfikar Bagus Pambuko , Islamic Economics Law, Universitas Muhammadiyah Magelang, Magelang, Indonesia 10 May 2025 Author Response Dear Reviewer We would like to warmly thank you for reading our manuscript and your valuable comments which would substantially improve our paper. We have followed carefully all your comments ... Continue reading Dear Reviewer We would like to warmly thank you for reading our manuscript and your valuable comments which would substantially improve our paper. We have followed carefully all your comments in the preparation of the revised version of the paper. Our revisions are summarized below. Reviewer’s Suggestion 1: Abstract: 1. Should provide a more concise summary of policy implications. Authors’ Response : Improvements have been made to the conclusion sections. “… Therefore, spin-off policies for Islamic banks appear to be a viable strategy, as independence fosters enhanced risk sensitivity.” 2. Explain the role of GMM estimation more clearly. Authors’ Response : Improvements have been made to the methods sections. “… using a dynamic panel model with the Generalized Method of Moments (GMM) to overcome potential endogeneity issues that might bias the results.” Reviewer’s Suggestion 2: Introduction: The justification for financing risk as the main focus should be stronger. Authors’ Response : We have added information to last paragraph “This is crucial given the pivotal role of financing risk management in impacting profitability, financing capacity, and overall financial stability (Pratami et al., 2023; Sriyana, 2015), where spin-offs hold the potential to mitigate such risks.” The introduction is well-structured, presenting a logical flow from the importance of Islamic banking to the research gap. Authors’ Response : Thank you It could benefit from a stronger linkage between spin-offs and financing risk earlier in the section. Authors’ Response : We have added information to last paragraph “This is crucial given the pivotal role of financing risk management in impacting profitability, financing capacity, and overall financial stability (Pratami et al., 2023; Sriyana, 2015), where spin-offs hold the potential to mitigate such risks.” Regulatory changes should be introduced earlier for better framing. Authors’ Response : We have added information to paragraph 2 “The growing importance of this matter is underscored by the fact that the amendment of Law No. 21/2008 into Law No. 4/2023 retains spin-off as a key strategy for the acceleration of Islamic banking in Indonesia, albeit with the necessity of proper alignment.” Reviewer’s Suggestion 3: Literature Review The literature review covers a broad range of studies, but it does not deeply analyze conflicting findings from past research. It could benefit from categorizing past studies (e.g., studies on spin-offs, studies on financing risk, and studies on policy implications). Needs a conceptual framework diagram to show research positioning. Could analyze contradictions in past research on non-performing financing (NPF). The section needs a conceptual framework diagram to clarify key variables and hypotheses. Authors’ response : We have added a new subsection (conceptual framework) to the literature review that addresses all the feedback as follows "Conceptual Framework Although numerous factors have been identified as influencing financing risk, the findings across studies tend to show inconsistencies. These discrepancies may be attributed to differences in research settings, observation periods, and data analysis techniques. Nevertheless, this study focuses on presenting findings that are theoretically grounded and relevant to the existing literature. In line with this, the main objective of this research is to examine the impact of the spin-off decision on financing risk in Islamic banking in Indonesia—an aspect that has not been previously explored. The study also incorporates control variables, including internal bank conditions (bank size and market share) and macroeconomic indicators (inflation, economic growth, and oil price). The conceptual framework is illustrated in Figure 1, and the hypotheses are formulated as follows: H 1 : The spin-off decision has a negative effect on financing risk H 2 : Bank size has a positive effect on financing risk H 3 : Market share has a positive effect on financing risk H 4 : Inflation has a positive effect on financing risk H 5 : Economic growth has a negative effect on financing risk H 6 : Oil price has a negative effect on financing risk" Reviewer’s Suggestion 4: Methods The methodology is rigorous and well-explained, but it assumes familiarity with GMM among readers. The rationale for choosing specific macroeconomic variables should be expanded. Justify why inflation and oil prices were included as control variables. Data collection methods are clearly documented, but more details on handling missing data would strengthen credibility. More details on how missing data was handled would strengthen credibility. Authors’ response: Thank you for your feedback. We have provided a relatively detailed explanation regarding the use of GMM, covering its advantages, lag selection, instrument validity, etc. Furthermore, we offer the following additional clarification: “This approach was adopted to mitigate several underlying problems commonly encountered in panel data, specifically endogeneity, heteroskedasticity, and autocorrelation.” Furthermore, the selection of inflation and economic growth as macroeconomic variables was based on their common usage in the context of Islamic banking. Meanwhile, oil price was chosen because this variable is very rarely associated with Islamic banking performance, including financing risk. Subsequently, incomplete data were excluded from the analysis, leading us to employ an unbalanced panel data model. Consequently, only observations containing complete data were included in the estimation. This can be observed in Table 2 where the total data amounts to 1032 observations, while the final estimation in Table 4 only utilizes 948 observations. Reviewer’s Suggestion 5: Results and Discussion The interaction term (Spin-off × Size) needs a clearer interpretation. Managerial and policy implications should be expanded beyond statistical results. The empirical results are robust and align with previous studies, but some explanations are too technical for non-expert readers. The discussion connects well with the literature, but it could further explain why larger spin-off banks face higher risks. Clarification of Interaction Term (Spin-off × Size): The interpretation of why larger spin-off banks face higher risk needs more depth. Policy recommendations could be better integrated into this section rather than leaving them mostly in the conclusion. Authors’ response : We have refined the Discussion section to enhance its accessibility for a broader audience, including non-expert readers. Specifically, we have incorporated additional explanations to clarify the impact of the interaction variable (as detailed in the fifth paragraph) and macroeconomic factors (the seventh paragraph) on financing risk. This was done by providing more intuitive interpretations of the statistical findings, drawing analogies to real-world scenarios, and simplifying complex economic relationships without sacrificing the rigor of our analysis. “This is further supported by the significant positive effect of the interaction variable (spinoff*size), indicating that larger Islamic banks undergoing spin-offs face elevated financing risk compared to smaller ones. As highlighted by Trinugroho et al., (2021), the multifaceted nature of financing contracts in Islamic banking substantially elevates the risk of non-performing financing. Consequently, substantial asset expansion and spin-off implementation carry inherent risks that can be amplified by insufficient managerial readiness, making it harder to maintain financing quality.” “On the other hand, economic growth and inflation exhibit inconsistent results across different model specifications. Inflation generally exerts a positive influence on financing risk, as observed in models 2, 6, and 8. This finding aligns with previous studies, which suggests that inflation can reduce purchasing power, leading to increased loan defaults (Awdeh et al., 2024; Patiu & Eleazar, 2024). However, the impact of economic growth on financing risk is more nuanced, with negative effects observed in the difference GMM estimation and positive effects in the system GMM estimation. This discrepancy might be attributed to the non-linear relationship between economic growth and NPF. The difference GMM method may suggest short-term effects, potentially indicating that during periods of economic expansion, borrowers exhibit a higher propensity for timely repayment. Conversely, the system GMM method, which is considered to provide more robust estimates overall, may reveal longer-term effects. Over extended periods of strong economic growth, banks may exhibit increased lending appetite and potentially relax credit standards, leading to a higher incidence of future repayment difficulties (Castro, 2013; Huizinga & Laeven, 2019; Mongid et al., 2023). Furthermore, this divergence in results may be explained by the finite sample bias in difference GMM, which relies solely on the differenced data, discarding level information.” We acknowledge the reviewer's valuable suggestion to elaborate on policy recommendations within the discussion section to provide immediate context and justification. However, we have made a deliberate decision to retain the policy recommendations in the conclusion section. Our rationale for this placement is to ensure that the recommendations are presented as a direct and concise culmination of the entire analysis. By positioning them at the end, we aim to offer policymakers and other readers a readily accessible summary of the key actionable insights derived from our research. This structure allows readers to first grasp the full scope of our findings and their implications before focusing on the specific policy implications. We believe this approach enhances the clarity and impact of our recommendations as a direct takeaway from the study's overall conclusions. Reviewer’s Suggestion 6: Conclusion Should differentiate theoretical contributions from practical implications. Authors’ response : We have refined the narrative, separating the empirical and theoretical contributions as follows: “Empirically, our findings reveal that Islamic windows carry a higher risk compared to full-fledged Islamic banks that undergo spin-offs. We also discover that spin-off Islamic banks with larger assets are more exposed to risk than those with smaller assets. This notice is supported by the regression that financing risk increases with the growth of assets and market share. Theoretically, this research contributes to the broader understanding of Islamic banking dynamics by providing empirical evidence on the risk implications of organizational structure transformation. Specifically, it highlights the potential risk reduction associated with the increased autonomy and focused operational framework of independent Islamic banks post-spin-off.” Future research suggestions are too general and need more specific directions. Authors’ response : We have refined the narrative as follows: “Furthermore, incorporating a broader range of internal (such as market concentration, market power, types of financing, operating expense ratio, etc) and external variables (exchange rate, money supply, etc), as well as expanding the analysis to include Islamic banks in countries that have implemented spin-offs, such as Saudi Arabia, Pakistan, Kuwait, etc., would provide a more comprehensive understanding of the phenomenon.” Reviewer’s Suggestion 7: References Should add more recent studies (post-2022). Include cross-country comparisons to strengthen global relevance. Authors’ response : Thank you for your constructive feedback. We have now incorporated additional relevant references, including cross-country studies and publications from 2022 onwards, to further strengthen the theoretical grounding and contextual relevance of our findings. Addou, K. I., Boulanouar, Z., Anwer, Z., Bensghir, A., & Ramadilli Mohammad, S. M. (2024). The impact of Basel III regulations on solvency and credit risk-taking behavior of Islamic banks. International Journal of Islamic and Middle Eastern Finance and Management , 17 (5), 915–935. https://doi.org/10.1108/IMEFM-05-2024-0248 Nasir, M. S., Oktaviani, Y., & Andriyani, N. (2022). Determinants of Non-Performing Loans and Non-Performing Financing level: Evidence in Indonesia 2008-2021. Banks and Bank Systems , 17 (4), 116–128. https://doi.org/10.21511/bbs.17(4).2022.10 Pratami, A., Afandi, A., Sriyana, J., & Feriyanto, N. (2023). The Role of Financing Models and Credit Risk on Islamic Bank Stability. Cuadernos de Economía , 46 (131), 43–53. Shah, S. A. A., Fianto, B. A., Sheikh, A. E., Sukmana, R., Kayani, U. N., & Bin Ridzuan, A. R. (2023). Role of fintech in credit risk management: an analysis of Islamic banks in Indonesia, Malaysia, UAE and Pakistan. Journal of Science and Technology Policy Management , 14 (6), 1128–1154. https://doi.org/10.1108/JSTPM-06-2022-0104 Sriyana, J. (2015). Islamic banks’ profitability amid the competitive financing in Indonesia. International Journal of Applied Business and Economic Research , 13 (4), 1695–1710. Sutrisno, Widarjono, A., & Mohamad, M. (2023). Does Financing Diversification Improve Bank Risk? Evidence From Indonesian Islamic Rural Banks. International Journal of Economics and Finance Studies , 15 (4), 103–124. https://doi.org/10.34109/ijefs.202315406 Warninda, T. D., Ekaputra, I. A., & Rokhim, R. (2019). Do Mudarabah and Musharakah financing impact Islamic Bank credit risk differently? Research in International Business and Finance , 49 , 166–175. https://doi.org/10.1016/j.ribaf.2019.03.002 Dear Reviewer We would like to warmly thank you for reading our manuscript and your valuable comments which would substantially improve our paper. We have followed carefully all your comments in the preparation of the revised version of the paper. Our revisions are summarized below. Reviewer’s Suggestion 1: Abstract: 1. Should provide a more concise summary of policy implications. Authors’ Response : Improvements have been made to the conclusion sections. “… Therefore, spin-off policies for Islamic banks appear to be a viable strategy, as independence fosters enhanced risk sensitivity.” 2. Explain the role of GMM estimation more clearly. Authors’ Response : Improvements have been made to the methods sections. “… using a dynamic panel model with the Generalized Method of Moments (GMM) to overcome potential endogeneity issues that might bias the results.” Reviewer’s Suggestion 2: Introduction: The justification for financing risk as the main focus should be stronger. Authors’ Response : We have added information to last paragraph “This is crucial given the pivotal role of financing risk management in impacting profitability, financing capacity, and overall financial stability (Pratami et al., 2023; Sriyana, 2015), where spin-offs hold the potential to mitigate such risks.” The introduction is well-structured, presenting a logical flow from the importance of Islamic banking to the research gap. Authors’ Response : Thank you It could benefit from a stronger linkage between spin-offs and financing risk earlier in the section. Authors’ Response : We have added information to last paragraph “This is crucial given the pivotal role of financing risk management in impacting profitability, financing capacity, and overall financial stability (Pratami et al., 2023; Sriyana, 2015), where spin-offs hold the potential to mitigate such risks.” Regulatory changes should be introduced earlier for better framing. Authors’ Response : We have added information to paragraph 2 “The growing importance of this matter is underscored by the fact that the amendment of Law No. 21/2008 into Law No. 4/2023 retains spin-off as a key strategy for the acceleration of Islamic banking in Indonesia, albeit with the necessity of proper alignment.” Reviewer’s Suggestion 3: Literature Review The literature review covers a broad range of studies, but it does not deeply analyze conflicting findings from past research. It could benefit from categorizing past studies (e.g., studies on spin-offs, studies on financing risk, and studies on policy implications). Needs a conceptual framework diagram to show research positioning. Could analyze contradictions in past research on non-performing financing (NPF). The section needs a conceptual framework diagram to clarify key variables and hypotheses. Authors’ response : We have added a new subsection (conceptual framework) to the literature review that addresses all the feedback as follows "Conceptual Framework Although numerous factors have been identified as influencing financing risk, the findings across studies tend to show inconsistencies. These discrepancies may be attributed to differences in research settings, observation periods, and data analysis techniques. Nevertheless, this study focuses on presenting findings that are theoretically grounded and relevant to the existing literature. In line with this, the main objective of this research is to examine the impact of the spin-off decision on financing risk in Islamic banking in Indonesia—an aspect that has not been previously explored. The study also incorporates control variables, including internal bank conditions (bank size and market share) and macroeconomic indicators (inflation, economic growth, and oil price). The conceptual framework is illustrated in Figure 1, and the hypotheses are formulated as follows: H 1 : The spin-off decision has a negative effect on financing risk H 2 : Bank size has a positive effect on financing risk H 3 : Market share has a positive effect on financing risk H 4 : Inflation has a positive effect on financing risk H 5 : Economic growth has a negative effect on financing risk H 6 : Oil price has a negative effect on financing risk" Reviewer’s Suggestion 4: Methods The methodology is rigorous and well-explained, but it assumes familiarity with GMM among readers. The rationale for choosing specific macroeconomic variables should be expanded. Justify why inflation and oil prices were included as control variables. Data collection methods are clearly documented, but more details on handling missing data would strengthen credibility. More details on how missing data was handled would strengthen credibility. Authors’ response: Thank you for your feedback. We have provided a relatively detailed explanation regarding the use of GMM, covering its advantages, lag selection, instrument validity, etc. Furthermore, we offer the following additional clarification: “This approach was adopted to mitigate several underlying problems commonly encountered in panel data, specifically endogeneity, heteroskedasticity, and autocorrelation.” Furthermore, the selection of inflation and economic growth as macroeconomic variables was based on their common usage in the context of Islamic banking. Meanwhile, oil price was chosen because this variable is very rarely associated with Islamic banking performance, including financing risk. Subsequently, incomplete data were excluded from the analysis, leading us to employ an unbalanced panel data model. Consequently, only observations containing complete data were included in the estimation. This can be observed in Table 2 where the total data amounts to 1032 observations, while the final estimation in Table 4 only utilizes 948 observations. Reviewer’s Suggestion 5: Results and Discussion The interaction term (Spin-off × Size) needs a clearer interpretation. Managerial and policy implications should be expanded beyond statistical results. The empirical results are robust and align with previous studies, but some explanations are too technical for non-expert readers. The discussion connects well with the literature, but it could further explain why larger spin-off banks face higher risks. Clarification of Interaction Term (Spin-off × Size): The interpretation of why larger spin-off banks face higher risk needs more depth. Policy recommendations could be better integrated into this section rather than leaving them mostly in the conclusion. Authors’ response : We have refined the Discussion section to enhance its accessibility for a broader audience, including non-expert readers. Specifically, we have incorporated additional explanations to clarify the impact of the interaction variable (as detailed in the fifth paragraph) and macroeconomic factors (the seventh paragraph) on financing risk. This was done by providing more intuitive interpretations of the statistical findings, drawing analogies to real-world scenarios, and simplifying complex economic relationships without sacrificing the rigor of our analysis. “This is further supported by the significant positive effect of the interaction variable (spinoff*size), indicating that larger Islamic banks undergoing spin-offs face elevated financing risk compared to smaller ones. As highlighted by Trinugroho et al., (2021), the multifaceted nature of financing contracts in Islamic banking substantially elevates the risk of non-performing financing. Consequently, substantial asset expansion and spin-off implementation carry inherent risks that can be amplified by insufficient managerial readiness, making it harder to maintain financing quality.” “On the other hand, economic growth and inflation exhibit inconsistent results across different model specifications. Inflation generally exerts a positive influence on financing risk, as observed in models 2, 6, and 8. This finding aligns with previous studies, which suggests that inflation can reduce purchasing power, leading to increased loan defaults (Awdeh et al., 2024; Patiu & Eleazar, 2024). However, the impact of economic growth on financing risk is more nuanced, with negative effects observed in the difference GMM estimation and positive effects in the system GMM estimation. This discrepancy might be attributed to the non-linear relationship between economic growth and NPF. The difference GMM method may suggest short-term effects, potentially indicating that during periods of economic expansion, borrowers exhibit a higher propensity for timely repayment. Conversely, the system GMM method, which is considered to provide more robust estimates overall, may reveal longer-term effects. Over extended periods of strong economic growth, banks may exhibit increased lending appetite and potentially relax credit standards, leading to a higher incidence of future repayment difficulties (Castro, 2013; Huizinga & Laeven, 2019; Mongid et al., 2023). Furthermore, this divergence in results may be explained by the finite sample bias in difference GMM, which relies solely on the differenced data, discarding level information.” We acknowledge the reviewer's valuable suggestion to elaborate on policy recommendations within the discussion section to provide immediate context and justification. However, we have made a deliberate decision to retain the policy recommendations in the conclusion section. Our rationale for this placement is to ensure that the recommendations are presented as a direct and concise culmination of the entire analysis. By positioning them at the end, we aim to offer policymakers and other readers a readily accessible summary of the key actionable insights derived from our research. This structure allows readers to first grasp the full scope of our findings and their implications before focusing on the specific policy implications. We believe this approach enhances the clarity and impact of our recommendations as a direct takeaway from the study's overall conclusions. Reviewer’s Suggestion 6: Conclusion Should differentiate theoretical contributions from practical implications. Authors’ response : We have refined the narrative, separating the empirical and theoretical contributions as follows: “Empirically, our findings reveal that Islamic windows carry a higher risk compared to full-fledged Islamic banks that undergo spin-offs. We also discover that spin-off Islamic banks with larger assets are more exposed to risk than those with smaller assets. This notice is supported by the regression that financing risk increases with the growth of assets and market share. Theoretically, this research contributes to the broader understanding of Islamic banking dynamics by providing empirical evidence on the risk implications of organizational structure transformation. Specifically, it highlights the potential risk reduction associated with the increased autonomy and focused operational framework of independent Islamic banks post-spin-off.” Future research suggestions are too general and need more specific directions. Authors’ response : We have refined the narrative as follows: “Furthermore, incorporating a broader range of internal (such as market concentration, market power, types of financing, operating expense ratio, etc) and external variables (exchange rate, money supply, etc), as well as expanding the analysis to include Islamic banks in countries that have implemented spin-offs, such as Saudi Arabia, Pakistan, Kuwait, etc., would provide a more comprehensive understanding of the phenomenon.” Reviewer’s Suggestion 7: References Should add more recent studies (post-2022). Include cross-country comparisons to strengthen global relevance. Authors’ response : Thank you for your constructive feedback. We have now incorporated additional relevant references, including cross-country studies and publications from 2022 onwards, to further strengthen the theoretical grounding and contextual relevance of our findings. Addou, K. I., Boulanouar, Z., Anwer, Z., Bensghir, A., & Ramadilli Mohammad, S. M. (2024). The impact of Basel III regulations on solvency and credit risk-taking behavior of Islamic banks. International Journal of Islamic and Middle Eastern Finance and Management , 17 (5), 915–935. https://doi.org/10.1108/IMEFM-05-2024-0248 Nasir, M. S., Oktaviani, Y., & Andriyani, N. (2022). Determinants of Non-Performing Loans and Non-Performing Financing level: Evidence in Indonesia 2008-2021. Banks and Bank Systems , 17 (4), 116–128. https://doi.org/10.21511/bbs.17(4).2022.10 Pratami, A., Afandi, A., Sriyana, J., & Feriyanto, N. (2023). The Role of Financing Models and Credit Risk on Islamic Bank Stability. Cuadernos de Economía , 46 (131), 43–53. Shah, S. A. A., Fianto, B. A., Sheikh, A. E., Sukmana, R., Kayani, U. N., & Bin Ridzuan, A. R. (2023). Role of fintech in credit risk management: an analysis of Islamic banks in Indonesia, Malaysia, UAE and Pakistan. Journal of Science and Technology Policy Management , 14 (6), 1128–1154. https://doi.org/10.1108/JSTPM-06-2022-0104 Sriyana, J. (2015). Islamic banks’ profitability amid the competitive financing in Indonesia. International Journal of Applied Business and Economic Research , 13 (4), 1695–1710. Sutrisno, Widarjono, A., & Mohamad, M. (2023). Does Financing Diversification Improve Bank Risk? Evidence From Indonesian Islamic Rural Banks. International Journal of Economics and Finance Studies , 15 (4), 103–124. https://doi.org/10.34109/ijefs.202315406 Warninda, T. D., Ekaputra, I. A., & Rokhim, R. (2019). Do Mudarabah and Musharakah financing impact Islamic Bank credit risk differently? Research in International Business and Finance , 49 , 166–175. https://doi.org/10.1016/j.ribaf.2019.03.002 Competing Interests: none Close Report a concern COMMENT ON THIS REPORT Views 0 Cite How to cite this report: Mutamimah M. Reviewer Report For: Influence of spin-off decision on financing risk: Empirical insight from Indonesian Islamic banks [version 3; peer review: 3 approved, 1 approved with reservations] . F1000Research 2025, 13 :1251 ( https://doi.org/10.5256/f1000research.176913.r364511 ) The direct URL for this report is: https://f1000research.com/articles/13-1251/v2#referee-response-364511 NOTE: it is important to ensure the information in square brackets after the title is included in this citation. Close Copy Citation Details Reviewer Report 06 Feb 2025 Mutamimah Mutamimah , Universitas Islam Sultan Agung, Semarang, Central Java, Indonesia Approved VIEWS 0 https://doi.org/10.5256/f1000research.176913.r364511 Ok, thanks for your revision. This ... Continue reading READ ALL Ok, thanks for your revision. This suite with my suggestion. Good luck Competing Interests: No competing interests were disclosed. Reviewer Expertise: Economics, Management, Financial Management I confirm that I have read this submission and believe that I have an appropriate level of expertise to confirm that it is of an acceptable scientific standard. Close READ LESS CITE CITE HOW TO CITE THIS REPORT Mutamimah M. Reviewer Report For: Influence of spin-off decision on financing risk: Empirical insight from Indonesian Islamic banks [version 3; peer review: 3 approved, 1 approved with reservations] . F1000Research 2025, 13 :1251 ( https://doi.org/10.5256/f1000research.176913.r364511 ) The direct URL for this report is: https://f1000research.com/articles/13-1251/v2#referee-response-364511 NOTE: it is important to ensure the information in square brackets after the title is included in all citations of this article. COPY CITATION DETAILS Report a concern Respond or Comment COMMENT ON THIS REPORT Version 1 VERSION 1 PUBLISHED 18 Oct 2024 Views 0 Cite How to cite this report: Mutamimah M. Reviewer Report For: Influence of spin-off decision on financing risk: Empirical insight from Indonesian Islamic banks [version 3; peer review: 3 approved, 1 approved with reservations] . F1000Research 2025, 13 :1251 ( https://doi.org/10.5256/f1000research.172879.r353263 ) The direct URL for this report is: https://f1000research.com/articles/13-1251/v1#referee-response-353263 NOTE: it is important to ensure the information in square brackets after the title is included in this citation. Close Copy Citation Details Reviewer Report 10 Jan 2025 Mutamimah Mutamimah , Universitas Islam Sultan Agung, Semarang, Central Java, Indonesia Approved with Reservations VIEWS 0 https://doi.org/10.5256/f1000research.172879.r353263 The article is well written and meets the rules for good articles. The problem formulation is based on research gaps from previous research results. Apart from that, the research method is also appropriate, including the indicators, and statistical analysis and ... Continue reading READ ALL The article is well written and meets the rules for good articles. The problem formulation is based on research gaps from previous research results. Apart from that, the research method is also appropriate, including the indicators, and statistical analysis and results. However, researchers need to attach the year in which the Islamic banking spin-off was carried out, because each Islamic banking spin-off is different. In table 2 about Descriptive analysis of variables, the description of each variable should be explained well. Furthermore, in conclusion, it must have limitations and future research agenda. It would be good to explain why the research did not analyze financing risks before the spin-off, so there will be a difference between before the spin-off and after the spin-off. Good luck! Is the work clearly and accurately presented and does it cite the current literature? Yes Is the study design appropriate and is the work technically sound? Yes Are sufficient details of methods and analysis provided to allow replication by others? Yes If applicable, is the statistical analysis and its interpretation appropriate? Yes Are all the source data underlying the results available to ensure full reproducibility? Yes Are the conclusions drawn adequately supported by the results? Yes Competing Interests: No competing interests were disclosed. Reviewer Expertise: Economics, Management, Financial Management I confirm that I have read this submission and believe that I have an appropriate level of expertise to confirm that it is of an acceptable scientific standard, however I have significant reservations, as outlined above. Close READ LESS CITE CITE HOW TO CITE THIS REPORT Mutamimah M. Reviewer Report For: Influence of spin-off decision on financing risk: Empirical insight from Indonesian Islamic banks [version 3; peer review: 3 approved, 1 approved with reservations] . F1000Research 2025, 13 :1251 ( https://doi.org/10.5256/f1000research.172879.r353263 ) The direct URL for this report is: https://f1000research.com/articles/13-1251/v1#referee-response-353263 NOTE: it is important to ensure the information in square brackets after the title is included in all citations of this article. COPY CITATION DETAILS Report a concern Author Response 04 Feb 2025 Zulfikar Bagus Pambuko , Islamic Economics Law, Universitas Muhammadiyah Magelang, Magelang, Indonesia 04 Feb 2025 Author Response We would like to warmly thank you for reading our manuscript and your valuable comments which would substantially improve our paper. We have followed carefully all your comments in the ... Continue reading We would like to warmly thank you for reading our manuscript and your valuable comments which would substantially improve our paper. We have followed carefully all your comments in the preparation of the revised version of the paper. Our revisions are summarized below. Reviewer’s Suggestion 1: The article is well written and meets the rules for good articles. The problem formulation is based on research gaps from previous research results. Apart from that, the research method is also appropriate, including the indicators, and statistical analysis and results. However, researchers need to attach the year in which the Islamic banking spin-off was carried out, because each Islamic banking spin-off is different. Authors’ Response: Following your insightful suggestion, we have revised the Method section to provide a more comprehensive overview of the restructuring processes within the Indonesian Islamic banking industry. The newly added paragraph, which details historical data on spin-offs, conversions, and mergers, directly addresses your feedback regarding the need for more specific examples. “The Indonesian Islamic banking landscape has witnessed various restructuring strategies. Pure spin-offs were employed by banks such as Bukopin Syariah (2008), BNI Syariah (2008), BRI Syariah (2010), BJB Syariah (2010), and Bank Nano Syariah (2024). Conversion, another common approach, was adopted by BTPN Syariah (2014), Bank Aceh Syariah (2016), BPD NTB Syariah (2018), and BPD Riau Kepri Syariah (2022). The formation of Bank Syariah Indonesia in 2021 marked a significant merger in the sector. Moreover, a combination of acquisition and conversion was utilized sequentially by banks including Bank Panin Dubai Syariah (2009), Bank Victoria Syariah (2010), BCA Syariah (2010), and Bank Aladin Syariah (2010).” Reviewer’s Suggestion 2: In table 2 about Descriptive analysis of variables, the description of each variable should be explained well. Authors’ Response: Thank you for your valuable feedback. We have addressed your concerns regarding variable descriptions in the descriptive analysis. “Table 2 presents descriptive statistics for the variables spanning from 2006 to 2022. The average value of NPF, as a financing risk proxy, stands at 3.10%, remaining below the generally accepted upper limit of 5.00%. The lowest NPF value, at 0.00%, indicates that some Islamic banks exhibit no risky financing, while the highest recorded NPF value is 53.27%. This relatively high variability is supported by a standard deviation of 4.17%. SPINOFF, a dummy variable, has a mean of 0.27, indicating that spin-off events are relatively rare. Its standard deviation of 0.45 suggests moderate variability in occurrence. Regarding assets and market share, the lower mean values compared to the standard deviation suggest that Islamic banks in Indonesia are still dominated by a few larger banks, reflecting differences in institutional capacity and market reach. Similarly, the Consumer Price Index (CPI) and Industrial Production Index (IPI) show moderate variability, with standard deviations of 2.70 and 18.33, respectively, reflecting macroeconomic conditions that influence Islamic banking performance. Oil prices (OIL), a critical variable for resource-dependent economies, have a mean of IDR 0.86 million per barrel, with relatively stable fluctuations (standard deviation of 0.28). This stability contrasts with the high variability observed in institutional size and non-performing financing. Overall, the descriptive analysis underscores significant heterogeneity in institutional characteristics and economic factors, suggesting the need for tailored strategies in managing Islamic banks. Institutions must address wide disparities in size and market share, ensuring resilience to external economic conditions such as inflation, industrial output fluctuations, and oil price volatility.” Reviewer’s Suggestion 3: Furthermore, in conclusion, it must have limitations and future research agenda. It would be good to explain why the research did not analyze financing risks before the spin-off, so there will be a difference between before the spin-off and after the spin-off. Good luck! Authors’ Response: We appreciate your insightful comments. We have added the limitations and future research opportunities to the conclusion section. “The present study has identified several limitations. The utilization of a dummy variable to assess the impact of spin-offs on financing risk, while effective in capturing the immediate effects of regulatory policies, may not fully account for the nuanced dynamics at play. Moreover, the study's scope is constrained by the use of semi-annual data up to 2022 and its focus on the Indonesian Islamic banking industry. To address these limitations, future research could benefit from employing a difference-in-differences analysis to more precisely estimate the causal impact of spin-offs. Furthermore, incorporating a broader range of internal and external variables, as well as expanding the analysis to include Islamic banks in Southeast Asia or OIC countries, would provide a more comprehensive understanding of the phenomenon.” We would like to warmly thank you for reading our manuscript and your valuable comments which would substantially improve our paper. We have followed carefully all your comments in the preparation of the revised version of the paper. Our revisions are summarized below. Reviewer’s Suggestion 1: The article is well written and meets the rules for good articles. The problem formulation is based on research gaps from previous research results. Apart from that, the research method is also appropriate, including the indicators, and statistical analysis and results. However, researchers need to attach the year in which the Islamic banking spin-off was carried out, because each Islamic banking spin-off is different. Authors’ Response: Following your insightful suggestion, we have revised the Method section to provide a more comprehensive overview of the restructuring processes within the Indonesian Islamic banking industry. The newly added paragraph, which details historical data on spin-offs, conversions, and mergers, directly addresses your feedback regarding the need for more specific examples. “The Indonesian Islamic banking landscape has witnessed various restructuring strategies. Pure spin-offs were employed by banks such as Bukopin Syariah (2008), BNI Syariah (2008), BRI Syariah (2010), BJB Syariah (2010), and Bank Nano Syariah (2024). Conversion, another common approach, was adopted by BTPN Syariah (2014), Bank Aceh Syariah (2016), BPD NTB Syariah (2018), and BPD Riau Kepri Syariah (2022). The formation of Bank Syariah Indonesia in 2021 marked a significant merger in the sector. Moreover, a combination of acquisition and conversion was utilized sequentially by banks including Bank Panin Dubai Syariah (2009), Bank Victoria Syariah (2010), BCA Syariah (2010), and Bank Aladin Syariah (2010).” Reviewer’s Suggestion 2: In table 2 about Descriptive analysis of variables, the description of each variable should be explained well. Authors’ Response: Thank you for your valuable feedback. We have addressed your concerns regarding variable descriptions in the descriptive analysis. “Table 2 presents descriptive statistics for the variables spanning from 2006 to 2022. The average value of NPF, as a financing risk proxy, stands at 3.10%, remaining below the generally accepted upper limit of 5.00%. The lowest NPF value, at 0.00%, indicates that some Islamic banks exhibit no risky financing, while the highest recorded NPF value is 53.27%. This relatively high variability is supported by a standard deviation of 4.17%. SPINOFF, a dummy variable, has a mean of 0.27, indicating that spin-off events are relatively rare. Its standard deviation of 0.45 suggests moderate variability in occurrence. Regarding assets and market share, the lower mean values compared to the standard deviation suggest that Islamic banks in Indonesia are still dominated by a few larger banks, reflecting differences in institutional capacity and market reach. Similarly, the Consumer Price Index (CPI) and Industrial Production Index (IPI) show moderate variability, with standard deviations of 2.70 and 18.33, respectively, reflecting macroeconomic conditions that influence Islamic banking performance. Oil prices (OIL), a critical variable for resource-dependent economies, have a mean of IDR 0.86 million per barrel, with relatively stable fluctuations (standard deviation of 0.28). This stability contrasts with the high variability observed in institutional size and non-performing financing. Overall, the descriptive analysis underscores significant heterogeneity in institutional characteristics and economic factors, suggesting the need for tailored strategies in managing Islamic banks. Institutions must address wide disparities in size and market share, ensuring resilience to external economic conditions such as inflation, industrial output fluctuations, and oil price volatility.” Reviewer’s Suggestion 3: Furthermore, in conclusion, it must have limitations and future research agenda. It would be good to explain why the research did not analyze financing risks before the spin-off, so there will be a difference between before the spin-off and after the spin-off. Good luck! Authors’ Response: We appreciate your insightful comments. We have added the limitations and future research opportunities to the conclusion section. “The present study has identified several limitations. The utilization of a dummy variable to assess the impact of spin-offs on financing risk, while effective in capturing the immediate effects of regulatory policies, may not fully account for the nuanced dynamics at play. Moreover, the study's scope is constrained by the use of semi-annual data up to 2022 and its focus on the Indonesian Islamic banking industry. To address these limitations, future research could benefit from employing a difference-in-differences analysis to more precisely estimate the causal impact of spin-offs. Furthermore, incorporating a broader range of internal and external variables, as well as expanding the analysis to include Islamic banks in Southeast Asia or OIC countries, would provide a more comprehensive understanding of the phenomenon.” Competing Interests: none Close Report a concern Respond or Comment COMMENTS ON THIS REPORT Author Response 04 Feb 2025 Zulfikar Bagus Pambuko , Islamic Economics Law, Universitas Muhammadiyah Magelang, Magelang, Indonesia 04 Feb 2025 Author Response We would like to warmly thank you for reading our manuscript and your valuable comments which would substantially improve our paper. We have followed carefully all your comments in the ... Continue reading We would like to warmly thank you for reading our manuscript and your valuable comments which would substantially improve our paper. We have followed carefully all your comments in the preparation of the revised version of the paper. Our revisions are summarized below. Reviewer’s Suggestion 1: The article is well written and meets the rules for good articles. The problem formulation is based on research gaps from previous research results. Apart from that, the research method is also appropriate, including the indicators, and statistical analysis and results. However, researchers need to attach the year in which the Islamic banking spin-off was carried out, because each Islamic banking spin-off is different. Authors’ Response: Following your insightful suggestion, we have revised the Method section to provide a more comprehensive overview of the restructuring processes within the Indonesian Islamic banking industry. The newly added paragraph, which details historical data on spin-offs, conversions, and mergers, directly addresses your feedback regarding the need for more specific examples. “The Indonesian Islamic banking landscape has witnessed various restructuring strategies. Pure spin-offs were employed by banks such as Bukopin Syariah (2008), BNI Syariah (2008), BRI Syariah (2010), BJB Syariah (2010), and Bank Nano Syariah (2024). Conversion, another common approach, was adopted by BTPN Syariah (2014), Bank Aceh Syariah (2016), BPD NTB Syariah (2018), and BPD Riau Kepri Syariah (2022). The formation of Bank Syariah Indonesia in 2021 marked a significant merger in the sector. Moreover, a combination of acquisition and conversion was utilized sequentially by banks including Bank Panin Dubai Syariah (2009), Bank Victoria Syariah (2010), BCA Syariah (2010), and Bank Aladin Syariah (2010).” Reviewer’s Suggestion 2: In table 2 about Descriptive analysis of variables, the description of each variable should be explained well. Authors’ Response: Thank you for your valuable feedback. We have addressed your concerns regarding variable descriptions in the descriptive analysis. “Table 2 presents descriptive statistics for the variables spanning from 2006 to 2022. The average value of NPF, as a financing risk proxy, stands at 3.10%, remaining below the generally accepted upper limit of 5.00%. The lowest NPF value, at 0.00%, indicates that some Islamic banks exhibit no risky financing, while the highest recorded NPF value is 53.27%. This relatively high variability is supported by a standard deviation of 4.17%. SPINOFF, a dummy variable, has a mean of 0.27, indicating that spin-off events are relatively rare. Its standard deviation of 0.45 suggests moderate variability in occurrence. Regarding assets and market share, the lower mean values compared to the standard deviation suggest that Islamic banks in Indonesia are still dominated by a few larger banks, reflecting differences in institutional capacity and market reach. Similarly, the Consumer Price Index (CPI) and Industrial Production Index (IPI) show moderate variability, with standard deviations of 2.70 and 18.33, respectively, reflecting macroeconomic conditions that influence Islamic banking performance. Oil prices (OIL), a critical variable for resource-dependent economies, have a mean of IDR 0.86 million per barrel, with relatively stable fluctuations (standard deviation of 0.28). This stability contrasts with the high variability observed in institutional size and non-performing financing. Overall, the descriptive analysis underscores significant heterogeneity in institutional characteristics and economic factors, suggesting the need for tailored strategies in managing Islamic banks. Institutions must address wide disparities in size and market share, ensuring resilience to external economic conditions such as inflation, industrial output fluctuations, and oil price volatility.” Reviewer’s Suggestion 3: Furthermore, in conclusion, it must have limitations and future research agenda. It would be good to explain why the research did not analyze financing risks before the spin-off, so there will be a difference between before the spin-off and after the spin-off. Good luck! Authors’ Response: We appreciate your insightful comments. We have added the limitations and future research opportunities to the conclusion section. “The present study has identified several limitations. The utilization of a dummy variable to assess the impact of spin-offs on financing risk, while effective in capturing the immediate effects of regulatory policies, may not fully account for the nuanced dynamics at play. Moreover, the study's scope is constrained by the use of semi-annual data up to 2022 and its focus on the Indonesian Islamic banking industry. To address these limitations, future research could benefit from employing a difference-in-differences analysis to more precisely estimate the causal impact of spin-offs. Furthermore, incorporating a broader range of internal and external variables, as well as expanding the analysis to include Islamic banks in Southeast Asia or OIC countries, would provide a more comprehensive understanding of the phenomenon.” We would like to warmly thank you for reading our manuscript and your valuable comments which would substantially improve our paper. We have followed carefully all your comments in the preparation of the revised version of the paper. Our revisions are summarized below. Reviewer’s Suggestion 1: The article is well written and meets the rules for good articles. The problem formulation is based on research gaps from previous research results. Apart from that, the research method is also appropriate, including the indicators, and statistical analysis and results. However, researchers need to attach the year in which the Islamic banking spin-off was carried out, because each Islamic banking spin-off is different. Authors’ Response: Following your insightful suggestion, we have revised the Method section to provide a more comprehensive overview of the restructuring processes within the Indonesian Islamic banking industry. The newly added paragraph, which details historical data on spin-offs, conversions, and mergers, directly addresses your feedback regarding the need for more specific examples. “The Indonesian Islamic banking landscape has witnessed various restructuring strategies. Pure spin-offs were employed by banks such as Bukopin Syariah (2008), BNI Syariah (2008), BRI Syariah (2010), BJB Syariah (2010), and Bank Nano Syariah (2024). Conversion, another common approach, was adopted by BTPN Syariah (2014), Bank Aceh Syariah (2016), BPD NTB Syariah (2018), and BPD Riau Kepri Syariah (2022). The formation of Bank Syariah Indonesia in 2021 marked a significant merger in the sector. Moreover, a combination of acquisition and conversion was utilized sequentially by banks including Bank Panin Dubai Syariah (2009), Bank Victoria Syariah (2010), BCA Syariah (2010), and Bank Aladin Syariah (2010).” Reviewer’s Suggestion 2: In table 2 about Descriptive analysis of variables, the description of each variable should be explained well. Authors’ Response: Thank you for your valuable feedback. We have addressed your concerns regarding variable descriptions in the descriptive analysis. “Table 2 presents descriptive statistics for the variables spanning from 2006 to 2022. The average value of NPF, as a financing risk proxy, stands at 3.10%, remaining below the generally accepted upper limit of 5.00%. The lowest NPF value, at 0.00%, indicates that some Islamic banks exhibit no risky financing, while the highest recorded NPF value is 53.27%. This relatively high variability is supported by a standard deviation of 4.17%. SPINOFF, a dummy variable, has a mean of 0.27, indicating that spin-off events are relatively rare. Its standard deviation of 0.45 suggests moderate variability in occurrence. Regarding assets and market share, the lower mean values compared to the standard deviation suggest that Islamic banks in Indonesia are still dominated by a few larger banks, reflecting differences in institutional capacity and market reach. Similarly, the Consumer Price Index (CPI) and Industrial Production Index (IPI) show moderate variability, with standard deviations of 2.70 and 18.33, respectively, reflecting macroeconomic conditions that influence Islamic banking performance. Oil prices (OIL), a critical variable for resource-dependent economies, have a mean of IDR 0.86 million per barrel, with relatively stable fluctuations (standard deviation of 0.28). This stability contrasts with the high variability observed in institutional size and non-performing financing. Overall, the descriptive analysis underscores significant heterogeneity in institutional characteristics and economic factors, suggesting the need for tailored strategies in managing Islamic banks. Institutions must address wide disparities in size and market share, ensuring resilience to external economic conditions such as inflation, industrial output fluctuations, and oil price volatility.” Reviewer’s Suggestion 3: Furthermore, in conclusion, it must have limitations and future research agenda. It would be good to explain why the research did not analyze financing risks before the spin-off, so there will be a difference between before the spin-off and after the spin-off. Good luck! Authors’ Response: We appreciate your insightful comments. We have added the limitations and future research opportunities to the conclusion section. “The present study has identified several limitations. The utilization of a dummy variable to assess the impact of spin-offs on financing risk, while effective in capturing the immediate effects of regulatory policies, may not fully account for the nuanced dynamics at play. Moreover, the study's scope is constrained by the use of semi-annual data up to 2022 and its focus on the Indonesian Islamic banking industry. To address these limitations, future research could benefit from employing a difference-in-differences analysis to more precisely estimate the causal impact of spin-offs. Furthermore, incorporating a broader range of internal and external variables, as well as expanding the analysis to include Islamic banks in Southeast Asia or OIC countries, would provide a more comprehensive understanding of the phenomenon.” Competing Interests: none Close Report a concern COMMENT ON THIS REPORT Views 0 Cite How to cite this report: Ibrahim A. Reviewer Report For: Influence of spin-off decision on financing risk: Empirical insight from Indonesian Islamic banks [version 3; peer review: 3 approved, 1 approved with reservations] . F1000Research 2025, 13 :1251 ( https://doi.org/10.5256/f1000research.172879.r336316 ) The direct URL for this report is: https://f1000research.com/articles/13-1251/v1#referee-response-336316 NOTE: it is important to ensure the information in square brackets after the title is included in this citation. Close Copy Citation Details Reviewer Report 07 Nov 2024 Azharsyah Ibrahim , Universitas Islam Negeri Ar-Raniry, Banda Aceh, Indonesia Approved with Reservations VIEWS 0 https://doi.org/10.5256/f1000research.172879.r336316 Summary This paper investigates the impact of the spin-off decision (Islamic windows separating from conventional banks to become independent Islamic banks) on financing risk in Indonesian Islamic banks. Using semi-annual data from 2006-2022 for 35 Islamic banks, the study ... Continue reading READ ALL Summary This paper investigates the impact of the spin-off decision (Islamic windows separating from conventional banks to become independent Islamic banks) on financing risk in Indonesian Islamic banks. Using semi-annual data from 2006-2022 for 35 Islamic banks, the study employs a dynamic panel model with Generalized Method of Moments (GMM) estimation. The key finding is that spin-offs significantly reduce financing risk, particularly for larger banks. The study also finds that larger Islamic banks and those with a higher market share generally face higher financing risk. The negative correlation between oil prices and non-performing financing suggests that increasing oil prices may indirectly benefit Islamic banks by stimulating the economy. Evaluation Is the work clearly and accurately presented and does it cite the current literature? Partly. While the presentation is generally clear, some areas could benefit from more precise language and further elaboration. The literature review, while extensive, could be structured more thematically to better highlight the existing research gaps and the study's contribution. Some cited works appear very recent (2023-2024) and I am unable to verify their accessibility/existence given my current knowledge cutoff. It's important to ensure all cited works are publicly accessible. Is the study design appropriate and is the work technically sound? Partly. The use of a dynamic panel model with GMM is appropriate for addressing potential endogeneity. However, the justification for using the OPEC basket price as a sole indicator of global oil prices could be strengthened. A broader measure or a combination of indicators might be more representative. Additionally, more detail on the specific GMM implementation (e.g., lag selection, instrument validity tests beyond Sargan) would enhance the technical soundness. Are sufficient details of methods and analysis provided to allow replication by others? Partly. While the data sources are mentioned, the specific variables used within the model (e.g., how "market share" is calculated) could be more explicitly defined. The provided dataset link on Zenodo was checked and is accessible. However, clear instructions on how to merge the bank-specific data with the macroeconomic data are necessary for full replication. More detail on the GMM implementation is also needed (as mentioned above). If applicable, is the statistical analysis and its interpretation appropriate? Partly. The interpretation of the results generally aligns with the findings. However, the discussion of the inconsistent results for economic growth and inflation could be improved. Exploring potential reasons for these inconsistencies or considering alternative model specifications might provide more robust insights. Furthermore, while the Sargan test is reported, more comprehensive diagnostics related to the GMM estimation would strengthen the analysis. Are all the source data underlying the results available to ensure full reproducibility? Yes. The data sources are listed and the Zenodo link provides the bank-level data. The macroeconomic data sources are also publicly accessible. However, as noted above, clearer instructions on data merging are needed. Are the conclusions drawn adequately supported by the results? Partly. The main conclusion regarding the positive impact of spin-offs on reducing financing risk is supported by the findings. However, the claim that larger spin-off banks are more exposed to risk needs further clarification. While the results show that size increases risk in general, it's not entirely clear from the presented analysis whether this effect is amplified after the spin-off, or if larger banks simply start at a higher risk level pre-spin-off. More nuanced analysis and discussion are needed to fully support this specific conclusion. Specific Recommendations for Improvement: Literature Review: Organize the literature thematically and clearly articulate the research gap being addressed. Verify the accessibility of all cited works. Methodology: Provide a stronger justification for the choice of oil price indicator. Elaborate on the specific GMM implementation details (lag selection, instrument details, and robustness checks). Data and Replication: Provide clear definitions of all variables, including calculations. Include detailed instructions on how to merge the datasets used. Statistical Analysis: Explore reasons for the inconsistent results of control variables. Provide more comprehensive GMM diagnostics. Conclusion: Refine the discussion about the impact of size on risk for spin-off banks. Provide clearer evidence to support the claim of increased risk for larger spin-off banks compared to smaller ones. Consider separating the impact of size on risk in general from the specific impact on spin-off banks. Is the work clearly and accurately presented and does it cite the current literature? Partly Is the study design appropriate and is the work technically sound? Partly Are sufficient details of methods and analysis provided to allow replication by others? Partly If applicable, is the statistical analysis and its interpretation appropriate? Partly Are all the source data underlying the results available to ensure full reproducibility? Yes Are the conclusions drawn adequately supported by the results? Partly Competing Interests: No competing interests were disclosed. Reviewer Expertise: Islamic management, banking, and finance I confirm that I have read this submission and believe that I have an appropriate level of expertise to confirm that it is of an acceptable scientific standard, however I have significant reservations, as outlined above. Close READ LESS CITE CITE HOW TO CITE THIS REPORT Ibrahim A. Reviewer Report For: Influence of spin-off decision on financing risk: Empirical insight from Indonesian Islamic banks [version 3; peer review: 3 approved, 1 approved with reservations] . F1000Research 2025, 13 :1251 ( https://doi.org/10.5256/f1000research.172879.r336316 ) The direct URL for this report is: https://f1000research.com/articles/13-1251/v1#referee-response-336316 NOTE: it is important to ensure the information in square brackets after the title is included in all citations of this article. COPY CITATION DETAILS Report a concern Author Response 04 Feb 2025 Zulfikar Bagus Pambuko , Islamic Economics Law, Universitas Muhammadiyah Magelang, Magelang, Indonesia 04 Feb 2025 Author Response We would like to warmly thank you for reading our manuscript and your valuable comments which would substantially improve our paper. We have followed carefully all your comments in the ... Continue reading We would like to warmly thank you for reading our manuscript and your valuable comments which would substantially improve our paper. We have followed carefully all your comments in the preparation of the revised version of the paper. Our revisions are summarized below. Reviewer’s Suggestion 1: Is the work clearly and accurately presented and does it cite the current literature? Partly. While the presentation is generally clear, some areas could benefit from more precise language and further elaboration. The literature review, while extensive, could be structured more thematically to better highlight the existing research gaps and the study's contribution. Some cited works appear very recent (2023-2024) and I am unable to verify their accessibility/existence given my current knowledge cutoff. It's important to ensure all cited works are publicly accessible. Authors’ Response: We would like to express our gratitude for your valuable feedback in enhancing the quality of our article. In response to your suggestion, we have incorporated a dedicated section on literature review as follows: “ Literature Review The management of bad financing or non-performing financing (NPF) presents a critical challenge for Islamic banking institutions in Indonesia (Imaduddin, 2008; Nugroho et al., 2018; Soekapdjo et al., 2018). Non-performing financing, characterized by loans or financing contracts in default or at risk of default, can have far-reaching implications on the stability and credibility of financial institutions (Hernawati et al., 2021). In traditional banking, its known as non-performing loan (NPL). The existence of financing risk can hinder the stability of Islamic banking entities, potentially jeopardizing their capacity to facilitate economic growth and foster financial inclusivity (Banna et al., 2022). Considering the distinct characteristics of Islamic finance, rooted in risk-sharing and asset-backed principles, a comprehensive exploration of how spin-off decisions influence financing risk, specifically non-performing financing, requires further investigation. Bank-specific factors influencing financing risk Research on NPF in Islamic banking and NPL in conventional banking reveals that various internal and external factors influence financing risk. For conventional banks, external factors such as macroeconomic conditions play a dominant role in shaping NPL levels, while in Islamic banks, both internal and external factors significantly affect NPF (Loang et al., 2023; Setiawan et al., 2017). Among bank-specific factors, an increase in NPF is associated with variables such as bank size, operating efficiency ratio, liquid asset ratio, financing-to-deposit ratio, and foreign ownership (Havidz & Setiawan, 2015; Hosen & Muhari, 2019; Osunkoya et al., 2023; Rahim & Zakaria, 2013; Saw et al., 2022; Zheng et al., 2019). Conversely, factors that contribute to a reduction in NPF include higher net operating profit, capital adequacy ratio, return on assets, cost-to-income ratio, deposit fund growth, return on equity, loan growth, and market concentration (Hartanto & Samputra, 2023; Hosen & Muhari, 2019; Muhammad et al., 2020; Rahim & Zakaria, 2013; Zheng et al., 2019). Macroeconomic factors influencing financing risk Macroeconomic conditions also significantly impact the level of financing risk in Islamic banks. Negative economic indicators such as exchange rate fluctuations, inflation, and economic policy uncertainty have been found to increase NPF levels (Firmansyah, 2014; Hosen & Muhari, 2019; Karadima & Louri, 2021; Osunkoya et al., 2023; Zheng et al., 2019). On the other hand, positive macroeconomic trends such as GDP growth and reduced unemployment contribute to a decrease in NPF (Ferhi, 2018; Hassan et al., 2019; Hernawati et al., 2021; Le & Diep, 2020; Zheng et al., 2019). Additionally, a surplus in foreign exchange reserves can trigger a financing boom, which may subsequently affect financing quality and contribute to increased NPF levels (Kuncoro, 2024).” Reviewer’s Suggestion 2: Is the study design appropriate and is the work technically sound? Partly. The use of a dynamic panel model with GMM is appropriate for addressing potential endogeneity. However, the justification for using the OPEC basket price as a sole indicator of global oil prices could be strengthened. A broader measure or a combination of indicators might be more representative. Additionally, more detail on the specific GMM implementation (e.g., lag selection, instrument validity tests beyond Sargan) would enhance the technical soundness. Authors’ Response: We have added an explanation regarding the use of the OPEC basket price in the “Method” section. “This price serves as a crucial benchmark in determining crude oil prices in the global market, including Indonesia, although it is merely one of many indicators influenced by various complex factors.” Additionally, we have provided a more detailed explanation of lag selection in GMM estimation. “A lag order of one (lag 1) was used for estimation” Reviewer’s Suggestion 3: Are sufficient details of methods and analysis provided to allow replication by others? Partly. While the data sources are mentioned, the specific variables used within the model (e.g., how "market share" is calculated) could be more explicitly defined. The provided dataset link on Zenodo was checked and is accessible. However, clear instructions on how to merge the bank-specific data with the macroeconomic data are necessary for full replication. More detail on the GMM implementation is also needed (as mentioned above). Authors’ Response: Thank you for the suggestion. Supplementary information regarding the variables has been provided in Table 1. “Non-performing financing is the ratio of bad financing by total financing” “Inflation is measured using the Consumer Price Index (CPI), which compares the total cost of a fixed basket of goods and services in the current period to the cost of the same basket in a base period” “Economic growth is measured using the Industrial Production Index (IPI), which is calculated by dividing the value of production in a specific period by the value of production in the base year 2010.” The data used in this study is a combination of panel data (internal data from Islamic banks) and time series data (macroeconomic data). For the macroeconomic data, we ensured that the estimation periods aligned, and duplicated the time series data for each Islamic bank observation. Given the unbalanced nature of the panel data, macroeconomic data was only added to complete Islamic bank observations. Reviewer’s Suggestion 4: If applicable, is the statistical analysis and its interpretation appropriate? Partly. The interpretation of the results generally aligns with the findings. However, the discussion of the inconsistent results for economic growth and inflation could be improved. Exploring potential reasons for these inconsistencies or considering alternative model specifications might provide more robust insights. Furthermore, while the Sargan test is reported, more comprehensive diagnostics related to the GMM estimation would strengthen the analysis. Authors’ Response: Following the reviewer’s suggestion, we have enhanced the discussion of economic growth and inflation in the “empirical results” section. Furthermore, we have provided a more detailed statistical analysis to elucidate the differences between the difference GMM and system GMM estimators. “On the other hand, economic growth and inflation exhibit inconsistent results across different model specifications. Inflation generally exerts a positive influence on financing risk, as observed in models 2, 6, and 8. This finding aligns with previous studies, which suggests that inflation can reduce purchasing power, leading to increased loan defaults (Awdeh et al., 2024; Patiu & Eleazar, 2024). However, the impact of economic growth on financing risk is more nuanced, with negative effects observed in the difference GMM estimation and positive effects in the system GMM estimation. This discrepancy might be attributed to the non-linear relationship between economic growth and NPF, where difference GMM captures short-term effects while system GMM captures long-term effects. The positive relationship in the system GMM, which is considered to provide more robust estimates, may reflect the potential for credit booms during periods of economic expansion, leading Islamic banks to loosen lending standards (Castro, 2013; Huizinga & Laeven, 2019; Mongid et al., 2023). Furthermore, this divergence in results may be explained by the finite sample bias in difference GMM, which relies solely on differences across time periods and excludes the level data.” Reviewer’s Suggestion 5: Are all the source data underlying the results available to ensure full reproducibility? Yes. The data sources are listed and the Zenodo link provides the bank-level data. The macroeconomic data sources are also publicly accessible. However, as noted above, clearer instructions on data merging are needed. Authors’ Response: Thank you for the suggestion. The data used in this study is a combination of panel data (internal data from Islamic banks) and time series data (macroeconomic data). For the macroeconomic data, we ensured that the estimation periods aligned, and duplicated the time series data for each Islamic bank observation. Given the unbalanced nature of the panel data, macroeconomic data was only added to complete Islamic bank observations. Reviewer’s Suggestion 6: Are the conclusions drawn adequately supported by the results? Partly. The main conclusion regarding the positive impact of spin-offs on reducing financing risk is supported by the findings. However, the claim that larger spin-off banks are more exposed to risk needs further clarification. While the results show that size increases risk in general, it's not entirely clear from the presented analysis whether this effect is amplified after the spin-off, or if larger banks simply start at a higher risk level pre-spin-off. More nuanced analysis and discussion are needed to fully support this specific conclusion. Authors’ Response: The conclusion that larger spin-off banks are more exposed to risk is derived from the interaction variables between the spin-off and size variables (spinoff*size), as detailed in the fifth paragraph of the "Empirical Results" section. “Furthermore, these results are corroborated by the estimations of the interaction variable (spinoff*size), which significantly influences non-performing financing. Thus, larger Islamic banks that undergo spin-offs carry a higher financing risk compared to smaller banks. As highlighted by Trinugroho et al., (2021), the multifaceted nature of financing contracts in Islamic banking substantially elevates the risk of non-performing financing.” Specific Recommendations for Improvement: Reviewer’s Suggestion 7: Literature Review: Organize the literature thematically and clearly articulate the research gap being addressed. Verify the accessibility of all cited works. Authors’ Response: Please refer to response number 1. Reviewer’s Suggestion 8: Methodology: Provide a stronger justification for the choice of oil price indicator. Elaborate on the specific GMM implementation details (lag selection, instrument details, and robustness checks). Authors’ Response: Please refer to response number 2. Reviewer’s Suggestion 9: Data and Replication: Provide clear definitions of all variables, including calculations. Include detailed instructions on how to merge the datasets used. Authors’ Response: Please refer to response number 4. Reviewer’s Suggestion 10: Statistical Analysis: Explore reasons for the inconsistent results of control variables. Provide more comprehensive GMM diagnostics. Authors’ Response: Based on the literature review, our implementation of the GMM model adheres to the established guidelines. While inconsistencies in the estimation results between difference GMM and system GMM for some variables are common, the inconsistencies in the spin-off, size, and IPI variables might be attributed to endogeneity issues better addressed by system GMM or measurement errors in difference GMM. This can be explained by the inherent differences between the two estimators. Difference GMM uses first differences to eliminate fixed effects, whereas system GMM combines instruments from both first differences and levels, allowing it to capture more of the variability in the data (The preceding explanation offers a more in-depth analysis of response number 4). Reviewer’s Suggestion 11: Conclusion: Refine the discussion about the impact of size on risk for spin-off banks. Provide clearer evidence to support the claim of increased risk for larger spin-off banks compared to smaller ones. Consider separating the impact of size on risk in general from the specific impact on spin-off banks. Authors’ Response: we have explained separately in the last 2 paragraphs in the Results and Discussion section related to the general impact of size on NPF, followed by a specific examination of the interaction between spin-off and size on NPF. The positive interaction term between spin-off and size (spinoff*size) on Table 4 suggests an increased risk of NPF for larger spin-off banks. we have also added a supporting statement, “As highlighted by Trinugroho et al., (2021), the multifaceted nature of financing contracts in Islamic banking substantially elevates the risk of non-performing financing.” We would like to warmly thank you for reading our manuscript and your valuable comments which would substantially improve our paper. We have followed carefully all your comments in the preparation of the revised version of the paper. Our revisions are summarized below. Reviewer’s Suggestion 1: Is the work clearly and accurately presented and does it cite the current literature? Partly. While the presentation is generally clear, some areas could benefit from more precise language and further elaboration. The literature review, while extensive, could be structured more thematically to better highlight the existing research gaps and the study's contribution. Some cited works appear very recent (2023-2024) and I am unable to verify their accessibility/existence given my current knowledge cutoff. It's important to ensure all cited works are publicly accessible. Authors’ Response: We would like to express our gratitude for your valuable feedback in enhancing the quality of our article. In response to your suggestion, we have incorporated a dedicated section on literature review as follows: “ Literature Review The management of bad financing or non-performing financing (NPF) presents a critical challenge for Islamic banking institutions in Indonesia (Imaduddin, 2008; Nugroho et al., 2018; Soekapdjo et al., 2018). Non-performing financing, characterized by loans or financing contracts in default or at risk of default, can have far-reaching implications on the stability and credibility of financial institutions (Hernawati et al., 2021). In traditional banking, its known as non-performing loan (NPL). The existence of financing risk can hinder the stability of Islamic banking entities, potentially jeopardizing their capacity to facilitate economic growth and foster financial inclusivity (Banna et al., 2022). Considering the distinct characteristics of Islamic finance, rooted in risk-sharing and asset-backed principles, a comprehensive exploration of how spin-off decisions influence financing risk, specifically non-performing financing, requires further investigation. Bank-specific factors influencing financing risk Research on NPF in Islamic banking and NPL in conventional banking reveals that various internal and external factors influence financing risk. For conventional banks, external factors such as macroeconomic conditions play a dominant role in shaping NPL levels, while in Islamic banks, both internal and external factors significantly affect NPF (Loang et al., 2023; Setiawan et al., 2017). Among bank-specific factors, an increase in NPF is associated with variables such as bank size, operating efficiency ratio, liquid asset ratio, financing-to-deposit ratio, and foreign ownership (Havidz & Setiawan, 2015; Hosen & Muhari, 2019; Osunkoya et al., 2023; Rahim & Zakaria, 2013; Saw et al., 2022; Zheng et al., 2019). Conversely, factors that contribute to a reduction in NPF include higher net operating profit, capital adequacy ratio, return on assets, cost-to-income ratio, deposit fund growth, return on equity, loan growth, and market concentration (Hartanto & Samputra, 2023; Hosen & Muhari, 2019; Muhammad et al., 2020; Rahim & Zakaria, 2013; Zheng et al., 2019). Macroeconomic factors influencing financing risk Macroeconomic conditions also significantly impact the level of financing risk in Islamic banks. Negative economic indicators such as exchange rate fluctuations, inflation, and economic policy uncertainty have been found to increase NPF levels (Firmansyah, 2014; Hosen & Muhari, 2019; Karadima & Louri, 2021; Osunkoya et al., 2023; Zheng et al., 2019). On the other hand, positive macroeconomic trends such as GDP growth and reduced unemployment contribute to a decrease in NPF (Ferhi, 2018; Hassan et al., 2019; Hernawati et al., 2021; Le & Diep, 2020; Zheng et al., 2019). Additionally, a surplus in foreign exchange reserves can trigger a financing boom, which may subsequently affect financing quality and contribute to increased NPF levels (Kuncoro, 2024).” Reviewer’s Suggestion 2: Is the study design appropriate and is the work technically sound? Partly. The use of a dynamic panel model with GMM is appropriate for addressing potential endogeneity. However, the justification for using the OPEC basket price as a sole indicator of global oil prices could be strengthened. A broader measure or a combination of indicators might be more representative. Additionally, more detail on the specific GMM implementation (e.g., lag selection, instrument validity tests beyond Sargan) would enhance the technical soundness. Authors’ Response: We have added an explanation regarding the use of the OPEC basket price in the “Method” section. “This price serves as a crucial benchmark in determining crude oil prices in the global market, including Indonesia, although it is merely one of many indicators influenced by various complex factors.” Additionally, we have provided a more detailed explanation of lag selection in GMM estimation. “A lag order of one (lag 1) was used for estimation” Reviewer’s Suggestion 3: Are sufficient details of methods and analysis provided to allow replication by others? Partly. While the data sources are mentioned, the specific variables used within the model (e.g., how "market share" is calculated) could be more explicitly defined. The provided dataset link on Zenodo was checked and is accessible. However, clear instructions on how to merge the bank-specific data with the macroeconomic data are necessary for full replication. More detail on the GMM implementation is also needed (as mentioned above). Authors’ Response: Thank you for the suggestion. Supplementary information regarding the variables has been provided in Table 1. “Non-performing financing is the ratio of bad financing by total financing” “Inflation is measured using the Consumer Price Index (CPI), which compares the total cost of a fixed basket of goods and services in the current period to the cost of the same basket in a base period” “Economic growth is measured using the Industrial Production Index (IPI), which is calculated by dividing the value of production in a specific period by the value of production in the base year 2010.” The data used in this study is a combination of panel data (internal data from Islamic banks) and time series data (macroeconomic data). For the macroeconomic data, we ensured that the estimation periods aligned, and duplicated the time series data for each Islamic bank observation. Given the unbalanced nature of the panel data, macroeconomic data was only added to complete Islamic bank observations. Reviewer’s Suggestion 4: If applicable, is the statistical analysis and its interpretation appropriate? Partly. The interpretation of the results generally aligns with the findings. However, the discussion of the inconsistent results for economic growth and inflation could be improved. Exploring potential reasons for these inconsistencies or considering alternative model specifications might provide more robust insights. Furthermore, while the Sargan test is reported, more comprehensive diagnostics related to the GMM estimation would strengthen the analysis. Authors’ Response: Following the reviewer’s suggestion, we have enhanced the discussion of economic growth and inflation in the “empirical results” section. Furthermore, we have provided a more detailed statistical analysis to elucidate the differences between the difference GMM and system GMM estimators. “On the other hand, economic growth and inflation exhibit inconsistent results across different model specifications. Inflation generally exerts a positive influence on financing risk, as observed in models 2, 6, and 8. This finding aligns with previous studies, which suggests that inflation can reduce purchasing power, leading to increased loan defaults (Awdeh et al., 2024; Patiu & Eleazar, 2024). However, the impact of economic growth on financing risk is more nuanced, with negative effects observed in the difference GMM estimation and positive effects in the system GMM estimation. This discrepancy might be attributed to the non-linear relationship between economic growth and NPF, where difference GMM captures short-term effects while system GMM captures long-term effects. The positive relationship in the system GMM, which is considered to provide more robust estimates, may reflect the potential for credit booms during periods of economic expansion, leading Islamic banks to loosen lending standards (Castro, 2013; Huizinga & Laeven, 2019; Mongid et al., 2023). Furthermore, this divergence in results may be explained by the finite sample bias in difference GMM, which relies solely on differences across time periods and excludes the level data.” Reviewer’s Suggestion 5: Are all the source data underlying the results available to ensure full reproducibility? Yes. The data sources are listed and the Zenodo link provides the bank-level data. The macroeconomic data sources are also publicly accessible. However, as noted above, clearer instructions on data merging are needed. Authors’ Response: Thank you for the suggestion. The data used in this study is a combination of panel data (internal data from Islamic banks) and time series data (macroeconomic data). For the macroeconomic data, we ensured that the estimation periods aligned, and duplicated the time series data for each Islamic bank observation. Given the unbalanced nature of the panel data, macroeconomic data was only added to complete Islamic bank observations. Reviewer’s Suggestion 6: Are the conclusions drawn adequately supported by the results? Partly. The main conclusion regarding the positive impact of spin-offs on reducing financing risk is supported by the findings. However, the claim that larger spin-off banks are more exposed to risk needs further clarification. While the results show that size increases risk in general, it's not entirely clear from the presented analysis whether this effect is amplified after the spin-off, or if larger banks simply start at a higher risk level pre-spin-off. More nuanced analysis and discussion are needed to fully support this specific conclusion. Authors’ Response: The conclusion that larger spin-off banks are more exposed to risk is derived from the interaction variables between the spin-off and size variables (spinoff*size), as detailed in the fifth paragraph of the "Empirical Results" section. “Furthermore, these results are corroborated by the estimations of the interaction variable (spinoff*size), which significantly influences non-performing financing. Thus, larger Islamic banks that undergo spin-offs carry a higher financing risk compared to smaller banks. As highlighted by Trinugroho et al., (2021), the multifaceted nature of financing contracts in Islamic banking substantially elevates the risk of non-performing financing.” Specific Recommendations for Improvement: Reviewer’s Suggestion 7: Literature Review: Organize the literature thematically and clearly articulate the research gap being addressed. Verify the accessibility of all cited works. Authors’ Response: Please refer to response number 1. Reviewer’s Suggestion 8: Methodology: Provide a stronger justification for the choice of oil price indicator. Elaborate on the specific GMM implementation details (lag selection, instrument details, and robustness checks). Authors’ Response: Please refer to response number 2. Reviewer’s Suggestion 9: Data and Replication: Provide clear definitions of all variables, including calculations. Include detailed instructions on how to merge the datasets used. Authors’ Response: Please refer to response number 4. Reviewer’s Suggestion 10: Statistical Analysis: Explore reasons for the inconsistent results of control variables. Provide more comprehensive GMM diagnostics. Authors’ Response: Based on the literature review, our implementation of the GMM model adheres to the established guidelines. While inconsistencies in the estimation results between difference GMM and system GMM for some variables are common, the inconsistencies in the spin-off, size, and IPI variables might be attributed to endogeneity issues better addressed by system GMM or measurement errors in difference GMM. This can be explained by the inherent differences between the two estimators. Difference GMM uses first differences to eliminate fixed effects, whereas system GMM combines instruments from both first differences and levels, allowing it to capture more of the variability in the data (The preceding explanation offers a more in-depth analysis of response number 4). Reviewer’s Suggestion 11: Conclusion: Refine the discussion about the impact of size on risk for spin-off banks. Provide clearer evidence to support the claim of increased risk for larger spin-off banks compared to smaller ones. Consider separating the impact of size on risk in general from the specific impact on spin-off banks. Authors’ Response: we have explained separately in the last 2 paragraphs in the Results and Discussion section related to the general impact of size on NPF, followed by a specific examination of the interaction between spin-off and size on NPF. The positive interaction term between spin-off and size (spinoff*size) on Table 4 suggests an increased risk of NPF for larger spin-off banks. we have also added a supporting statement, “As highlighted by Trinugroho et al., (2021), the multifaceted nature of financing contracts in Islamic banking substantially elevates the risk of non-performing financing.” Competing Interests: none Close Report a concern Respond or Comment COMMENTS ON THIS REPORT Author Response 04 Feb 2025 Zulfikar Bagus Pambuko , Islamic Economics Law, Universitas Muhammadiyah Magelang, Magelang, Indonesia 04 Feb 2025 Author Response We would like to warmly thank you for reading our manuscript and your valuable comments which would substantially improve our paper. We have followed carefully all your comments in the ... Continue reading We would like to warmly thank you for reading our manuscript and your valuable comments which would substantially improve our paper. We have followed carefully all your comments in the preparation of the revised version of the paper. Our revisions are summarized below. Reviewer’s Suggestion 1: Is the work clearly and accurately presented and does it cite the current literature? Partly. While the presentation is generally clear, some areas could benefit from more precise language and further elaboration. The literature review, while extensive, could be structured more thematically to better highlight the existing research gaps and the study's contribution. Some cited works appear very recent (2023-2024) and I am unable to verify their accessibility/existence given my current knowledge cutoff. It's important to ensure all cited works are publicly accessible. Authors’ Response: We would like to express our gratitude for your valuable feedback in enhancing the quality of our article. In response to your suggestion, we have incorporated a dedicated section on literature review as follows: “ Literature Review The management of bad financing or non-performing financing (NPF) presents a critical challenge for Islamic banking institutions in Indonesia (Imaduddin, 2008; Nugroho et al., 2018; Soekapdjo et al., 2018). Non-performing financing, characterized by loans or financing contracts in default or at risk of default, can have far-reaching implications on the stability and credibility of financial institutions (Hernawati et al., 2021). In traditional banking, its known as non-performing loan (NPL). The existence of financing risk can hinder the stability of Islamic banking entities, potentially jeopardizing their capacity to facilitate economic growth and foster financial inclusivity (Banna et al., 2022). Considering the distinct characteristics of Islamic finance, rooted in risk-sharing and asset-backed principles, a comprehensive exploration of how spin-off decisions influence financing risk, specifically non-performing financing, requires further investigation. Bank-specific factors influencing financing risk Research on NPF in Islamic banking and NPL in conventional banking reveals that various internal and external factors influence financing risk. For conventional banks, external factors such as macroeconomic conditions play a dominant role in shaping NPL levels, while in Islamic banks, both internal and external factors significantly affect NPF (Loang et al., 2023; Setiawan et al., 2017). Among bank-specific factors, an increase in NPF is associated with variables such as bank size, operating efficiency ratio, liquid asset ratio, financing-to-deposit ratio, and foreign ownership (Havidz & Setiawan, 2015; Hosen & Muhari, 2019; Osunkoya et al., 2023; Rahim & Zakaria, 2013; Saw et al., 2022; Zheng et al., 2019). Conversely, factors that contribute to a reduction in NPF include higher net operating profit, capital adequacy ratio, return on assets, cost-to-income ratio, deposit fund growth, return on equity, loan growth, and market concentration (Hartanto & Samputra, 2023; Hosen & Muhari, 2019; Muhammad et al., 2020; Rahim & Zakaria, 2013; Zheng et al., 2019). Macroeconomic factors influencing financing risk Macroeconomic conditions also significantly impact the level of financing risk in Islamic banks. Negative economic indicators such as exchange rate fluctuations, inflation, and economic policy uncertainty have been found to increase NPF levels (Firmansyah, 2014; Hosen & Muhari, 2019; Karadima & Louri, 2021; Osunkoya et al., 2023; Zheng et al., 2019). On the other hand, positive macroeconomic trends such as GDP growth and reduced unemployment contribute to a decrease in NPF (Ferhi, 2018; Hassan et al., 2019; Hernawati et al., 2021; Le & Diep, 2020; Zheng et al., 2019). Additionally, a surplus in foreign exchange reserves can trigger a financing boom, which may subsequently affect financing quality and contribute to increased NPF levels (Kuncoro, 2024).” Reviewer’s Suggestion 2: Is the study design appropriate and is the work technically sound? Partly. The use of a dynamic panel model with GMM is appropriate for addressing potential endogeneity. However, the justification for using the OPEC basket price as a sole indicator of global oil prices could be strengthened. A broader measure or a combination of indicators might be more representative. Additionally, more detail on the specific GMM implementation (e.g., lag selection, instrument validity tests beyond Sargan) would enhance the technical soundness. Authors’ Response: We have added an explanation regarding the use of the OPEC basket price in the “Method” section. “This price serves as a crucial benchmark in determining crude oil prices in the global market, including Indonesia, although it is merely one of many indicators influenced by various complex factors.” Additionally, we have provided a more detailed explanation of lag selection in GMM estimation. “A lag order of one (lag 1) was used for estimation” Reviewer’s Suggestion 3: Are sufficient details of methods and analysis provided to allow replication by others? Partly. While the data sources are mentioned, the specific variables used within the model (e.g., how "market share" is calculated) could be more explicitly defined. The provided dataset link on Zenodo was checked and is accessible. However, clear instructions on how to merge the bank-specific data with the macroeconomic data are necessary for full replication. More detail on the GMM implementation is also needed (as mentioned above). Authors’ Response: Thank you for the suggestion. Supplementary information regarding the variables has been provided in Table 1. “Non-performing financing is the ratio of bad financing by total financing” “Inflation is measured using the Consumer Price Index (CPI), which compares the total cost of a fixed basket of goods and services in the current period to the cost of the same basket in a base period” “Economic growth is measured using the Industrial Production Index (IPI), which is calculated by dividing the value of production in a specific period by the value of production in the base year 2010.” The data used in this study is a combination of panel data (internal data from Islamic banks) and time series data (macroeconomic data). For the macroeconomic data, we ensured that the estimation periods aligned, and duplicated the time series data for each Islamic bank observation. Given the unbalanced nature of the panel data, macroeconomic data was only added to complete Islamic bank observations. Reviewer’s Suggestion 4: If applicable, is the statistical analysis and its interpretation appropriate? Partly. The interpretation of the results generally aligns with the findings. However, the discussion of the inconsistent results for economic growth and inflation could be improved. Exploring potential reasons for these inconsistencies or considering alternative model specifications might provide more robust insights. Furthermore, while the Sargan test is reported, more comprehensive diagnostics related to the GMM estimation would strengthen the analysis. Authors’ Response: Following the reviewer’s suggestion, we have enhanced the discussion of economic growth and inflation in the “empirical results” section. Furthermore, we have provided a more detailed statistical analysis to elucidate the differences between the difference GMM and system GMM estimators. “On the other hand, economic growth and inflation exhibit inconsistent results across different model specifications. Inflation generally exerts a positive influence on financing risk, as observed in models 2, 6, and 8. This finding aligns with previous studies, which suggests that inflation can reduce purchasing power, leading to increased loan defaults (Awdeh et al., 2024; Patiu & Eleazar, 2024). However, the impact of economic growth on financing risk is more nuanced, with negative effects observed in the difference GMM estimation and positive effects in the system GMM estimation. This discrepancy might be attributed to the non-linear relationship between economic growth and NPF, where difference GMM captures short-term effects while system GMM captures long-term effects. The positive relationship in the system GMM, which is considered to provide more robust estimates, may reflect the potential for credit booms during periods of economic expansion, leading Islamic banks to loosen lending standards (Castro, 2013; Huizinga & Laeven, 2019; Mongid et al., 2023). Furthermore, this divergence in results may be explained by the finite sample bias in difference GMM, which relies solely on differences across time periods and excludes the level data.” Reviewer’s Suggestion 5: Are all the source data underlying the results available to ensure full reproducibility? Yes. The data sources are listed and the Zenodo link provides the bank-level data. The macroeconomic data sources are also publicly accessible. However, as noted above, clearer instructions on data merging are needed. Authors’ Response: Thank you for the suggestion. The data used in this study is a combination of panel data (internal data from Islamic banks) and time series data (macroeconomic data). For the macroeconomic data, we ensured that the estimation periods aligned, and duplicated the time series data for each Islamic bank observation. Given the unbalanced nature of the panel data, macroeconomic data was only added to complete Islamic bank observations. Reviewer’s Suggestion 6: Are the conclusions drawn adequately supported by the results? Partly. The main conclusion regarding the positive impact of spin-offs on reducing financing risk is supported by the findings. However, the claim that larger spin-off banks are more exposed to risk needs further clarification. While the results show that size increases risk in general, it's not entirely clear from the presented analysis whether this effect is amplified after the spin-off, or if larger banks simply start at a higher risk level pre-spin-off. More nuanced analysis and discussion are needed to fully support this specific conclusion. Authors’ Response: The conclusion that larger spin-off banks are more exposed to risk is derived from the interaction variables between the spin-off and size variables (spinoff*size), as detailed in the fifth paragraph of the "Empirical Results" section. “Furthermore, these results are corroborated by the estimations of the interaction variable (spinoff*size), which significantly influences non-performing financing. Thus, larger Islamic banks that undergo spin-offs carry a higher financing risk compared to smaller banks. As highlighted by Trinugroho et al., (2021), the multifaceted nature of financing contracts in Islamic banking substantially elevates the risk of non-performing financing.” Specific Recommendations for Improvement: Reviewer’s Suggestion 7: Literature Review: Organize the literature thematically and clearly articulate the research gap being addressed. Verify the accessibility of all cited works. Authors’ Response: Please refer to response number 1. Reviewer’s Suggestion 8: Methodology: Provide a stronger justification for the choice of oil price indicator. Elaborate on the specific GMM implementation details (lag selection, instrument details, and robustness checks). Authors’ Response: Please refer to response number 2. Reviewer’s Suggestion 9: Data and Replication: Provide clear definitions of all variables, including calculations. Include detailed instructions on how to merge the datasets used. Authors’ Response: Please refer to response number 4. Reviewer’s Suggestion 10: Statistical Analysis: Explore reasons for the inconsistent results of control variables. Provide more comprehensive GMM diagnostics. Authors’ Response: Based on the literature review, our implementation of the GMM model adheres to the established guidelines. While inconsistencies in the estimation results between difference GMM and system GMM for some variables are common, the inconsistencies in the spin-off, size, and IPI variables might be attributed to endogeneity issues better addressed by system GMM or measurement errors in difference GMM. This can be explained by the inherent differences between the two estimators. Difference GMM uses first differences to eliminate fixed effects, whereas system GMM combines instruments from both first differences and levels, allowing it to capture more of the variability in the data (The preceding explanation offers a more in-depth analysis of response number 4). Reviewer’s Suggestion 11: Conclusion: Refine the discussion about the impact of size on risk for spin-off banks. Provide clearer evidence to support the claim of increased risk for larger spin-off banks compared to smaller ones. Consider separating the impact of size on risk in general from the specific impact on spin-off banks. Authors’ Response: we have explained separately in the last 2 paragraphs in the Results and Discussion section related to the general impact of size on NPF, followed by a specific examination of the interaction between spin-off and size on NPF. The positive interaction term between spin-off and size (spinoff*size) on Table 4 suggests an increased risk of NPF for larger spin-off banks. we have also added a supporting statement, “As highlighted by Trinugroho et al., (2021), the multifaceted nature of financing contracts in Islamic banking substantially elevates the risk of non-performing financing.” We would like to warmly thank you for reading our manuscript and your valuable comments which would substantially improve our paper. We have followed carefully all your comments in the preparation of the revised version of the paper. Our revisions are summarized below. Reviewer’s Suggestion 1: Is the work clearly and accurately presented and does it cite the current literature? Partly. While the presentation is generally clear, some areas could benefit from more precise language and further elaboration. The literature review, while extensive, could be structured more thematically to better highlight the existing research gaps and the study's contribution. Some cited works appear very recent (2023-2024) and I am unable to verify their accessibility/existence given my current knowledge cutoff. It's important to ensure all cited works are publicly accessible. Authors’ Response: We would like to express our gratitude for your valuable feedback in enhancing the quality of our article. In response to your suggestion, we have incorporated a dedicated section on literature review as follows: “ Literature Review The management of bad financing or non-performing financing (NPF) presents a critical challenge for Islamic banking institutions in Indonesia (Imaduddin, 2008; Nugroho et al., 2018; Soekapdjo et al., 2018). Non-performing financing, characterized by loans or financing contracts in default or at risk of default, can have far-reaching implications on the stability and credibility of financial institutions (Hernawati et al., 2021). In traditional banking, its known as non-performing loan (NPL). The existence of financing risk can hinder the stability of Islamic banking entities, potentially jeopardizing their capacity to facilitate economic growth and foster financial inclusivity (Banna et al., 2022). Considering the distinct characteristics of Islamic finance, rooted in risk-sharing and asset-backed principles, a comprehensive exploration of how spin-off decisions influence financing risk, specifically non-performing financing, requires further investigation. Bank-specific factors influencing financing risk Research on NPF in Islamic banking and NPL in conventional banking reveals that various internal and external factors influence financing risk. For conventional banks, external factors such as macroeconomic conditions play a dominant role in shaping NPL levels, while in Islamic banks, both internal and external factors significantly affect NPF (Loang et al., 2023; Setiawan et al., 2017). Among bank-specific factors, an increase in NPF is associated with variables such as bank size, operating efficiency ratio, liquid asset ratio, financing-to-deposit ratio, and foreign ownership (Havidz & Setiawan, 2015; Hosen & Muhari, 2019; Osunkoya et al., 2023; Rahim & Zakaria, 2013; Saw et al., 2022; Zheng et al., 2019). Conversely, factors that contribute to a reduction in NPF include higher net operating profit, capital adequacy ratio, return on assets, cost-to-income ratio, deposit fund growth, return on equity, loan growth, and market concentration (Hartanto & Samputra, 2023; Hosen & Muhari, 2019; Muhammad et al., 2020; Rahim & Zakaria, 2013; Zheng et al., 2019). Macroeconomic factors influencing financing risk Macroeconomic conditions also significantly impact the level of financing risk in Islamic banks. Negative economic indicators such as exchange rate fluctuations, inflation, and economic policy uncertainty have been found to increase NPF levels (Firmansyah, 2014; Hosen & Muhari, 2019; Karadima & Louri, 2021; Osunkoya et al., 2023; Zheng et al., 2019). On the other hand, positive macroeconomic trends such as GDP growth and reduced unemployment contribute to a decrease in NPF (Ferhi, 2018; Hassan et al., 2019; Hernawati et al., 2021; Le & Diep, 2020; Zheng et al., 2019). Additionally, a surplus in foreign exchange reserves can trigger a financing boom, which may subsequently affect financing quality and contribute to increased NPF levels (Kuncoro, 2024).” Reviewer’s Suggestion 2: Is the study design appropriate and is the work technically sound? Partly. The use of a dynamic panel model with GMM is appropriate for addressing potential endogeneity. However, the justification for using the OPEC basket price as a sole indicator of global oil prices could be strengthened. A broader measure or a combination of indicators might be more representative. Additionally, more detail on the specific GMM implementation (e.g., lag selection, instrument validity tests beyond Sargan) would enhance the technical soundness. Authors’ Response: We have added an explanation regarding the use of the OPEC basket price in the “Method” section. “This price serves as a crucial benchmark in determining crude oil prices in the global market, including Indonesia, although it is merely one of many indicators influenced by various complex factors.” Additionally, we have provided a more detailed explanation of lag selection in GMM estimation. “A lag order of one (lag 1) was used for estimation” Reviewer’s Suggestion 3: Are sufficient details of methods and analysis provided to allow replication by others? Partly. While the data sources are mentioned, the specific variables used within the model (e.g., how "market share" is calculated) could be more explicitly defined. The provided dataset link on Zenodo was checked and is accessible. However, clear instructions on how to merge the bank-specific data with the macroeconomic data are necessary for full replication. More detail on the GMM implementation is also needed (as mentioned above). Authors’ Response: Thank you for the suggestion. Supplementary information regarding the variables has been provided in Table 1. “Non-performing financing is the ratio of bad financing by total financing” “Inflation is measured using the Consumer Price Index (CPI), which compares the total cost of a fixed basket of goods and services in the current period to the cost of the same basket in a base period” “Economic growth is measured using the Industrial Production Index (IPI), which is calculated by dividing the value of production in a specific period by the value of production in the base year 2010.” The data used in this study is a combination of panel data (internal data from Islamic banks) and time series data (macroeconomic data). For the macroeconomic data, we ensured that the estimation periods aligned, and duplicated the time series data for each Islamic bank observation. Given the unbalanced nature of the panel data, macroeconomic data was only added to complete Islamic bank observations. Reviewer’s Suggestion 4: If applicable, is the statistical analysis and its interpretation appropriate? Partly. The interpretation of the results generally aligns with the findings. However, the discussion of the inconsistent results for economic growth and inflation could be improved. Exploring potential reasons for these inconsistencies or considering alternative model specifications might provide more robust insights. Furthermore, while the Sargan test is reported, more comprehensive diagnostics related to the GMM estimation would strengthen the analysis. Authors’ Response: Following the reviewer’s suggestion, we have enhanced the discussion of economic growth and inflation in the “empirical results” section. Furthermore, we have provided a more detailed statistical analysis to elucidate the differences between the difference GMM and system GMM estimators. “On the other hand, economic growth and inflation exhibit inconsistent results across different model specifications. Inflation generally exerts a positive influence on financing risk, as observed in models 2, 6, and 8. This finding aligns with previous studies, which suggests that inflation can reduce purchasing power, leading to increased loan defaults (Awdeh et al., 2024; Patiu & Eleazar, 2024). However, the impact of economic growth on financing risk is more nuanced, with negative effects observed in the difference GMM estimation and positive effects in the system GMM estimation. This discrepancy might be attributed to the non-linear relationship between economic growth and NPF, where difference GMM captures short-term effects while system GMM captures long-term effects. The positive relationship in the system GMM, which is considered to provide more robust estimates, may reflect the potential for credit booms during periods of economic expansion, leading Islamic banks to loosen lending standards (Castro, 2013; Huizinga & Laeven, 2019; Mongid et al., 2023). Furthermore, this divergence in results may be explained by the finite sample bias in difference GMM, which relies solely on differences across time periods and excludes the level data.” Reviewer’s Suggestion 5: Are all the source data underlying the results available to ensure full reproducibility? Yes. The data sources are listed and the Zenodo link provides the bank-level data. The macroeconomic data sources are also publicly accessible. However, as noted above, clearer instructions on data merging are needed. Authors’ Response: Thank you for the suggestion. The data used in this study is a combination of panel data (internal data from Islamic banks) and time series data (macroeconomic data). For the macroeconomic data, we ensured that the estimation periods aligned, and duplicated the time series data for each Islamic bank observation. Given the unbalanced nature of the panel data, macroeconomic data was only added to complete Islamic bank observations. Reviewer’s Suggestion 6: Are the conclusions drawn adequately supported by the results? Partly. The main conclusion regarding the positive impact of spin-offs on reducing financing risk is supported by the findings. However, the claim that larger spin-off banks are more exposed to risk needs further clarification. While the results show that size increases risk in general, it's not entirely clear from the presented analysis whether this effect is amplified after the spin-off, or if larger banks simply start at a higher risk level pre-spin-off. More nuanced analysis and discussion are needed to fully support this specific conclusion. Authors’ Response: The conclusion that larger spin-off banks are more exposed to risk is derived from the interaction variables between the spin-off and size variables (spinoff*size), as detailed in the fifth paragraph of the "Empirical Results" section. “Furthermore, these results are corroborated by the estimations of the interaction variable (spinoff*size), which significantly influences non-performing financing. Thus, larger Islamic banks that undergo spin-offs carry a higher financing risk compared to smaller banks. As highlighted by Trinugroho et al., (2021), the multifaceted nature of financing contracts in Islamic banking substantially elevates the risk of non-performing financing.” Specific Recommendations for Improvement: Reviewer’s Suggestion 7: Literature Review: Organize the literature thematically and clearly articulate the research gap being addressed. Verify the accessibility of all cited works. Authors’ Response: Please refer to response number 1. Reviewer’s Suggestion 8: Methodology: Provide a stronger justification for the choice of oil price indicator. Elaborate on the specific GMM implementation details (lag selection, instrument details, and robustness checks). Authors’ Response: Please refer to response number 2. Reviewer’s Suggestion 9: Data and Replication: Provide clear definitions of all variables, including calculations. Include detailed instructions on how to merge the datasets used. Authors’ Response: Please refer to response number 4. Reviewer’s Suggestion 10: Statistical Analysis: Explore reasons for the inconsistent results of control variables. Provide more comprehensive GMM diagnostics. Authors’ Response: Based on the literature review, our implementation of the GMM model adheres to the established guidelines. While inconsistencies in the estimation results between difference GMM and system GMM for some variables are common, the inconsistencies in the spin-off, size, and IPI variables might be attributed to endogeneity issues better addressed by system GMM or measurement errors in difference GMM. This can be explained by the inherent differences between the two estimators. Difference GMM uses first differences to eliminate fixed effects, whereas system GMM combines instruments from both first differences and levels, allowing it to capture more of the variability in the data (The preceding explanation offers a more in-depth analysis of response number 4). Reviewer’s Suggestion 11: Conclusion: Refine the discussion about the impact of size on risk for spin-off banks. Provide clearer evidence to support the claim of increased risk for larger spin-off banks compared to smaller ones. Consider separating the impact of size on risk in general from the specific impact on spin-off banks. Authors’ Response: we have explained separately in the last 2 paragraphs in the Results and Discussion section related to the general impact of size on NPF, followed by a specific examination of the interaction between spin-off and size on NPF. The positive interaction term between spin-off and size (spinoff*size) on Table 4 suggests an increased risk of NPF for larger spin-off banks. we have also added a supporting statement, “As highlighted by Trinugroho et al., (2021), the multifaceted nature of financing contracts in Islamic banking substantially elevates the risk of non-performing financing.” Competing Interests: none Close Report a concern COMMENT ON THIS REPORT Comments on this article Comments (0) Version 3 VERSION 3 PUBLISHED 18 Oct 2024 ADD YOUR COMMENT Comment keyboard_arrow_left keyboard_arrow_right Open Peer Review Reviewer Status info_outline Alongside their report, reviewers assign a status to the article: Approved The paper is scientifically sound in its current form and only minor, if any, improvements are suggested Approved with reservations A number of small changes, sometimes more significant revisions are required to address specific details and improve the papers academic merit. Not approved Fundamental flaws in the paper seriously undermine the findings and conclusions Reviewer Reports Invited Reviewers 1 2 3 4 Version 3 (revision) 28 Apr 25 read read Version 2 (revision) 04 Feb 25 read read read Version 1 18 Oct 24 read read Azharsyah Ibrahim , Universitas Islam Negeri Ar-Raniry, Banda Aceh, Indonesia Mutamimah Mutamimah , Universitas Islam Sultan Agung, Semarang, Indonesia Eko Suprayitno , Universitas Islam Negeri Maulana Malik Ibrahim Malang, Malang, Indonesia Agus Widarjono , Universitas Islam Indonesia, Yogyakarta, Indonesia Comments on this article All Comments (0) Add a comment Sign up for content alerts Sign Up You are now signed up to receive this alert Browse by related subjects keyboard_arrow_left Back to all reports Reviewer Report 0 Views copyright © 2025 Widarjono A. This is an open access peer review report distributed under the terms of the Creative Commons Attribution License , which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. 13 May 2025 | for Version 3 Agus Widarjono , Universitas Islam Indonesia, Yogyakarta, Special Region of Yogyakarta, Indonesia 0 Views copyright © 2025 Widarjono A. This is an open access peer review report distributed under the terms of the Creative Commons Attribution License , which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. format_quote Cite this report speaker_notes Responses (0) Approved info_outline Alongside their report, reviewers assign a status to the article: Approved The paper is scientifically sound in its current form and only minor, if any, improvements are suggested Approved with reservations A number of small changes, sometimes more significant revisions are required to address specific details and improve the papers academic merit. Not approved Fundamental flaws in the paper seriously undermine the findings and conclusions The comments INTRODUCTION Thank you for responding to comments and providing feedback. LITERATURE REVIEW Thank you for responding to comments and providing feedback. METHOD AND RESULT AND DISCUSSION The author failed to respond to two robustness tests: 1. Changing variable of interest. There is no single measurement to measure Islamic bank financing risk as a dependent variable. Two methods are widely used, namely NPF (non-performing financing) and FLP (financing loss provision). To get robust results, the author needs to change the variable of interest. FLP is an alternative measure of financing risk. For example, see the following reference: Widarjono, A., Alam, M. M., Rafik, A., Afandi, A., & Sidiq, S. (2025). Nexus between competition, concentration and bank risk-taking in Indonesian Islamic banking. International Journal of Islamic and Middle Eastern Finance and Management , 18 (3), 672–690. (refer to 1) 2. Changing estimation method The dynamic panel model faces an endogeneity problem. The dynamic panel model is estimated by the GMM method. There are two GMM estimators, namely the first difference GMM (Arellano and Bond, 1991) and the system GMM (Arellano and Bover, 1995; Blundell and Bond, 1998) to address the endogeneity issue in the dynamic panel model using instrumental variables. The system GMM extends the first difference GMM to resolve the problems of instrument weakness so the system GMM generates more robust estimators than the first difference GMM. Therefore, authors must estimate using static panel regression as an alternative method for the robustness test. Furthermore, the dynamic panel method will generate a biased and inconsistent estimator if the cross-sectional object is small. The number of objects in this study is small, consisting of 35 Islamic banks. (Al-Muharrami & Murthy, 2016), see the following references: Al-muharrami, S., & Murthy, Y. S. R. (2016). Interest banking spreads in Oman and Arab GCC. International Journal of Emerging Markets , 12 (3), 532–549. (refer to 2 ) CONCLUSION Thank you for responding to comments and providing feedback. References 1. Widarjono A, Alam M, Rafik A, Afandi A, et al.: Nexus between competition, concentration and bank risk-taking in Indonesian Islamic banking. International Journal of Islamic and Middle Eastern Finance and Management . 2025; 18 (3): 672-690 Publisher Full Text 2. Al-muharrami S, Murthy Y: Interest banking spreads in Oman and Arab GCC. International Journal of Emerging Markets . 2017; 12 (3): 532-549 Publisher Full Text Competing Interests No competing interests were disclosed. Reviewer Expertise Islamic finance and banking I confirm that I have read this submission and believe that I have an appropriate level of expertise to confirm that it is of an acceptable scientific standard. reply Respond to this report Responses (0) Widarjono A. Peer Review Report For: Influence of spin-off decision on financing risk: Empirical insight from Indonesian Islamic banks [version 3; peer review: 3 approved, 1 approved with reservations] . F1000Research 2025, 13 :1251 ( https://doi.org/10.5256/f1000research.180998.r381249) NOTE: it is important to ensure the information in square brackets after the title is included in this citation. The direct URL for this report is: https://f1000research.com/articles/13-1251/v3#referee-response-381249 keyboard_arrow_left Back to all reports Reviewer Report 0 Views copyright © 2025 Ibrahim A. This is an open access peer review report distributed under the terms of the Creative Commons Attribution License , which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. 12 May 2025 | for Version 3 Azharsyah Ibrahim , Universitas Islam Negeri Ar-Raniry, Banda Aceh, Indonesia 0 Views copyright © 2025 Ibrahim A. This is an open access peer review report distributed under the terms of the Creative Commons Attribution License , which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. format_quote Cite this report speaker_notes Responses (0) Approved info_outline Alongside their report, reviewers assign a status to the article: Approved The paper is scientifically sound in its current form and only minor, if any, improvements are suggested Approved with reservations A number of small changes, sometimes more significant revisions are required to address specific details and improve the papers academic merit. Not approved Fundamental flaws in the paper seriously undermine the findings and conclusions The author has addressed all comments satisfactorily. Competing Interests No competing interests were disclosed. Reviewer Expertise Islamic business, economics, banking, and finance I confirm that I have read this submission and believe that I have an appropriate level of expertise to confirm that it is of an acceptable scientific standard. reply Respond to this report Responses (0) Ibrahim A. Peer Review Report For: Influence of spin-off decision on financing risk: Empirical insight from Indonesian Islamic banks [version 3; peer review: 3 approved, 1 approved with reservations] . F1000Research 2025, 13 :1251 ( https://doi.org/10.5256/f1000research.180998.r381251) NOTE: it is important to ensure the information in square brackets after the title is included in this citation. The direct URL for this report is: https://f1000research.com/articles/13-1251/v3#referee-response-381251 keyboard_arrow_left Back to all reports Reviewer Report 0 Views copyright © 2025 Widarjono A. This is an open access peer review report distributed under the terms of the Creative Commons Attribution License , which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. 14 Apr 2025 | for Version 2 Agus Widarjono , Universitas Islam Indonesia, Yogyakarta, Special Region of Yogyakarta, Indonesia 0 Views copyright © 2025 Widarjono A. This is an open access peer review report distributed under the terms of the Creative Commons Attribution License , which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. format_quote Cite this report speaker_notes Responses (1) Approved With Reservations info_outline Alongside their report, reviewers assign a status to the article: Approved The paper is scientifically sound in its current form and only minor, if any, improvements are suggested Approved with reservations A number of small changes, sometimes more significant revisions are required to address specific details and improve the papers academic merit. Not approved Fundamental flaws in the paper seriously undermine the findings and conclusions INTRODUCTION This study investigates the effect of the spin-off on NPF. The spin-off policy is a policy to improve the performance of Islamic banks in Indonesia. However, the author has not explained why NPF is used as a measure of the success of the spin-off policy. It needs to be explained why NPF is a serious problem in Islamic banking in Indonesia so that this spin-off policy can reduce financing risk. LITERATURE REVIEW Islamic bank financing is different from conventional bank financing. Islamic financing is broadly categorized as profit-loss sharing (PLS) financing and non-profit-sharing financing. PLS financings are subject to asymmetric information and moral hazard. As a result, PLS financing likely increases NPF. In this section, authors conduct the literature review regarding NPF but authors fail to address the impact of types of financing in Islamic banks on NPF. For example, see the following references : Warninda T., et al., (2019) [Ref-1] Sutrisno, S. et al., (2023) [Ref-2]. METHOD The difference and system GMM are a family of dynamic panel regression. The author must perform the robustness test with another estimation method. The author can employ static panel regression considering the number of banks is small (35 banks) while GMM requires a large number of banks. RESULT AND DISCUSSION Authors need to perform some robustness tests: 1. Changing variable of interest There is no single measure to calculate Islamic bank risk. To get robust results, the author needs to change the variable of interest. Financing loss provision (FLP) is an alternative measure of financing risk. For example, see the following reference: Widarjono A., et al., (2025) [Ref-3] 2. Changing estimation method Considering that the number of small banks is 35, the author needs to estimate the model with static panel regression. CONCLUSION In the conclusions, it is said that the spin-off policy is mandatory for every Islamic bank window. However, there is an important note from previous research that full spin-off likely decreases the performance of Islamic banks after several years of spin-off. See following references: Al Arif M., et al., (2020) [Ref-4] Trinugroho I, et al., 2021 [Ref-5] Is the work clearly and accurately presented and does it cite the current literature? Yes Is the study design appropriate and is the work technically sound? Yes Are sufficient details of methods and analysis provided to allow replication by others? Yes If applicable, is the statistical analysis and its interpretation appropriate? Partly Are all the source data underlying the results available to ensure full reproducibility? Yes Are the conclusions drawn adequately supported by the results? Yes References 1. Warninda T, Ekaputra I, Rokhim R: Do Mudarabah and Musharakah financing impact Islamic Bank credit risk differently?. Research in International Business and Finance . 2019; 49 : 166-175 Publisher Full Text 2. Sutrisno, S., Widarjono, A., Mohamad, M.: Does Financing Diversification Improve Bank Risk? Evidence From Indonesian Islamic Rural Banks. International Journal of Economics and Finance Studies . 2023. Publisher Full Text 3. Widarjono A, Alam M, Rafik A, Afandi A, et al.: Nexus between competition, concentration and bank risk-taking in Indonesian Islamic banking. International Journal of Islamic and Middle Eastern Finance and Management . 2025. Publisher Full Text 4. Al Arif M, Mufraini M, Prabowo M: Market Structure, Spin-Off, and Efficiency: Evidence from Indonesian Islamic Banking Industry. Emerging Markets Finance and Trade . 2020; 56 (2): 329-337 Publisher Full Text 5. Trinugroho I, Santoso W, Irawanto R, Pamungkas P: Is spin-off policy an effective way to improve performance of Islamic banks? Evidence from Indonesia. Research in International Business and Finance . 2021; 56 . Publisher Full Text Competing Interests No competing interests were disclosed. Reviewer Expertise Islamic finance and banking I confirm that I have read this submission and believe that I have an appropriate level of expertise to confirm that it is of an acceptable scientific standard, however I have significant reservations, as outlined above. reply Respond to this report Responses (1) Author Response 21 Apr 2025 Zulfikar Bagus Pambuko, Islamic Economics Law, Universitas Muhammadiyah Magelang, Magelang, Indonesia Dear Reviewer We would like to warmly thank you for reading our manuscript and your valuable comments which would substantially improve our paper. We have followed carefully all your comments in the preparation of the revised version of the paper. Our revisions are summarized below. Reviewer’s Suggestion 1: INTRODUCTION This study investigates the effect of the spin-off on NPF. The spin-off policy is a policy to improve the performance of Islamic banks in Indonesia. However, the author has not explained why NPF is used as a measure of the success of the spin-off policy. It needs to be explained why NPF is a serious problem in Islamic banking in Indonesia so that this spin-off policy can reduce financing risk. Authors’ response : We have added information at the end of the introduction with the following narrative: “This is crucial given the pivotal role of financing risk management in impacting profitability, financing capacity, and overall financial stability (Pratami et al., 2023; Sriyana, 2015), where spin-offs hold the potential to mitigate such risks.” Reviewer’s Suggestion 2: LITERATURE REVIEW Islamic bank financing is different from conventional bank financing. Islamic financing is broadly categorized as profit-loss sharing (PLS) financing and non-profit-sharing financing. PLS financings are subject to asymmetric information and moral hazard. As a result, PLS financing likely increases NPF. In this section, authors conduct the literature review regarding NPF but authors fail to address the impact of types of financing in Islamic banks on NPF. For example, see the following references : Warninda T., et al., (2019) [Ref-1] Sutrisno, S. et al., (2023) [Ref-2]. Authors’ response : Thank you for the positive feedback. We have added literature with the following narrative. “Furthermore, a high concentration of financing has been shown to negatively impact Non-Performing Financing (NPF) (Sutrisno et al., 2023). This underscores the necessity for a comprehensive understanding of the distinct risk profiles associated with various Islamic financing instruments in effective credit risk management. For instance, Warninda et al. (2019) found that, contrary to some assumptions, Mudarabah financing is not inherently riskier than Musharakah financing.” Reviewer’s Suggestion 3: METHOD The difference and system GMM are a family of dynamic panel regression. The author must perform the robustness test with another estimation method. The author can employ static panel regression considering the number of banks is small (35 banks) while GMM requires a large number of banks. Authors’ response : Thank you for your valuable feedback. We will certainly incorporate these suggestions into our future research. However, within the context of this current research, the progression from difference GMM estimation to system GMM is already considered part of the robustness check process. This is because the nature of a robustness check is to test whether the main results of an analysis remain consistent and not solely dependent on a single analytical approach, thus enhancing their reliability and generalizability. On the other hand, there are fundamental differences between the two estimations: difference GMM uses first differences to eliminate fixed effects, whereas system GMM combines instruments from both first differences and levels, allowing it to capture more of the variability in the data. Reviewer’s Suggestion 4: RESULT AND DISCUSSION Authors need to perform some robustness tests: 1. Changing variable of interest There is no single measure to calculate Islamic bank risk. To get robust results, the author needs to change the variable of interest. Financing loss provision (FLP) is an alternative measure of financing risk. For example, see the following reference: Widarjono A., et al., (2025) [Ref-3] 2. Changing estimation method Considering that the number of small banks is 35, the author needs to estimate the model with static panel regression. Authors’ response : Thank you for your valuable feedback. We will certainly incorporate these suggestions into our future research. However, within the context of this current research, the progression from difference GMM estimation to system GMM is already considered part of the robustness check process. This is because the nature of a robustness check is to test whether the main results of an analysis remain consistent and not solely dependent on a single analytical approach, thus enhancing their reliability and generalizability. On the other hand, there are fundamental differences between the two estimations: difference GMM uses first differences to eliminate fixed effects, whereas system GMM combines instruments from both first differences and levels, allowing it to capture more of the variability in the data. Reviewer’s Suggestion 5: CONCLUSION In the conclusions, it is said that the spin-off policy is mandatory for every Islamic bank window. However, there is an important note from previous research that full spin-off likely decreases the performance of Islamic banks after several years of spin-off. See following references: Al Arif M., et al., (2020) [Ref-4] Trinugroho I, et al., 2021 [Ref-5] Authors’ responses : Thank you for the feedback. It is true that several empirical studies reveal a decline in performance after spin-offs. However, from the perspective of financing risk management, we consider this policy to be viable. Moreover, with the issuance of the amendment to Law No. 21 of 2008 into Law No. 4 of 2023, which extends this policy, it increasingly indicates that this policy is not unfavorable. Nevertheless, we are refining the narrative in the conclusion as follows: “Consequently, the implementation of a spin-off policy represents a viable approach. This is further supported by the amendment of Law No. 21/2008 to Law No. 4/2023, which continues to accommodate spin-offs as a policy to foster the growth and contribution of Islamic banking to the national economy.” View more View less Competing Interests none reply Respond Report a concern Widarjono A. Peer Review Report For: Influence of spin-off decision on financing risk: Empirical insight from Indonesian Islamic banks [version 3; peer review: 3 approved, 1 approved with reservations] . F1000Research 2025, 13 :1251 ( https://doi.org/10.5256/f1000research.176913.r372133) NOTE: it is important to ensure the information in square brackets after the title is included in this citation. The direct URL for this report is: https://f1000research.com/articles/13-1251/v2#referee-response-372133 keyboard_arrow_left Back to all reports Reviewer Report 0 Views copyright © 2025 Suprayitno E. This is an open access peer review report distributed under the terms of the Creative Commons Attribution License , which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. 12 Apr 2025 | for Version 2 Eko Suprayitno , Universitas Islam Negeri Maulana Malik Ibrahim Malang, Malang, East Java, Indonesia 0 Views copyright © 2025 Suprayitno E. This is an open access peer review report distributed under the terms of the Creative Commons Attribution License , which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. format_quote Cite this report speaker_notes Responses (1) Approved With Reservations info_outline Alongside their report, reviewers assign a status to the article: Approved The paper is scientifically sound in its current form and only minor, if any, improvements are suggested Approved with reservations A number of small changes, sometimes more significant revisions are required to address specific details and improve the papers academic merit. Not approved Fundamental flaws in the paper seriously undermine the findings and conclusions Abstract: 1. Should provide a more concise summary of policy implications. 2. Explain the role of GMM estimation more clearly. Introduction: ��The justification for financing risk as the main focus should be stronger. ��The introduction is well-structured, presenting a logical flow from the importance of Islamic banking to the research gap. ��It could benefit from a stronger linkage between spin-offs and financing risk earlier in the section. �� Regulatory changes should be introduced earlier for better framing. Literature Review The literature review covers a broad range of studies, but it does not deeply analyze conflicting findings from past research. It could benefit from categorizing past studies (e.g., studies on spin-offs, studies on financing risk, and studies on policy implications). Needs a conceptual framework diagram to show research positioning. Could analyze contradictions in past research on non-performing financing (NPF). The section needs a conceptual framework diagram to clarify key variables and hypotheses. Methods �� The methodology is rigorous and well-explained, but it assumes familiarity with GMM among readers. ��The rationale for choosing specific macroeconomic variables should be expanded. ��Justify why inflation and oil prices were included as control variables. ��Data collection methods are clearly documented, but more details on handling missing data would strengthen credibility. More details on how missing data was handled would strengthen credibility. Results and Discussion �� The interaction term (Spin-off × Size) needs a clearer interpretation. �� Managerial and policy implications should be expanded beyond statistical results. ��The empirical results are robust and align with previous studies, but some explanations are too technical for non-expert readers. ��The discussion connects well with the literature, but it could further explain why larger spin-off banks face higher risks. ��Clarification of Interaction Term (Spin-off × Size): The interpretation of why larger spin-off banks face higher risk needs more depth. ��Policy recommendations could be better integrated into this section rather than leaving them mostly in the conclusion. Conclusion �� Should differentiate theoretical contributions from practical implications. �� Future research suggestions are too general and need more specific directions. References �� Should add more recent studies (post-2022). �� Include cross-country comparisons to strengthen global relevance. Is the work clearly and accurately presented and does it cite the current literature? Yes Is the study design appropriate and is the work technically sound? Partly Are sufficient details of methods and analysis provided to allow replication by others? Partly If applicable, is the statistical analysis and its interpretation appropriate? Partly Are all the source data underlying the results available to ensure full reproducibility? Partly Are the conclusions drawn adequately supported by the results? Partly Competing Interests No competing interests were disclosed. Reviewer Expertise Islamic banking, Islamic macroeconomics, Islamic finance I confirm that I have read this submission and believe that I have an appropriate level of expertise to confirm that it is of an acceptable scientific standard, however I have significant reservations, as outlined above. reply Respond to this report Responses (1) Author Response 10 May 2025 Zulfikar Bagus Pambuko, Islamic Economics Law, Universitas Muhammadiyah Magelang, Magelang, Indonesia Dear Reviewer We would like to warmly thank you for reading our manuscript and your valuable comments which would substantially improve our paper. We have followed carefully all your comments in the preparation of the revised version of the paper. Our revisions are summarized below. Reviewer’s Suggestion 1: Abstract: 1. Should provide a more concise summary of policy implications. Authors’ Response : Improvements have been made to the conclusion sections. “… Therefore, spin-off policies for Islamic banks appear to be a viable strategy, as independence fosters enhanced risk sensitivity.” 2. Explain the role of GMM estimation more clearly. Authors’ Response : Improvements have been made to the methods sections. “… using a dynamic panel model with the Generalized Method of Moments (GMM) to overcome potential endogeneity issues that might bias the results.” Reviewer’s Suggestion 2: Introduction: The justification for financing risk as the main focus should be stronger. Authors’ Response : We have added information to last paragraph “This is crucial given the pivotal role of financing risk management in impacting profitability, financing capacity, and overall financial stability (Pratami et al., 2023; Sriyana, 2015), where spin-offs hold the potential to mitigate such risks.” The introduction is well-structured, presenting a logical flow from the importance of Islamic banking to the research gap. Authors’ Response : Thank you It could benefit from a stronger linkage between spin-offs and financing risk earlier in the section. Authors’ Response : We have added information to last paragraph “This is crucial given the pivotal role of financing risk management in impacting profitability, financing capacity, and overall financial stability (Pratami et al., 2023; Sriyana, 2015), where spin-offs hold the potential to mitigate such risks.” Regulatory changes should be introduced earlier for better framing. Authors’ Response : We have added information to paragraph 2 “The growing importance of this matter is underscored by the fact that the amendment of Law No. 21/2008 into Law No. 4/2023 retains spin-off as a key strategy for the acceleration of Islamic banking in Indonesia, albeit with the necessity of proper alignment.” Reviewer’s Suggestion 3: Literature Review The literature review covers a broad range of studies, but it does not deeply analyze conflicting findings from past research. It could benefit from categorizing past studies (e.g., studies on spin-offs, studies on financing risk, and studies on policy implications). Needs a conceptual framework diagram to show research positioning. Could analyze contradictions in past research on non-performing financing (NPF). The section needs a conceptual framework diagram to clarify key variables and hypotheses. Authors’ response : We have added a new subsection (conceptual framework) to the literature review that addresses all the feedback as follows "Conceptual Framework Although numerous factors have been identified as influencing financing risk, the findings across studies tend to show inconsistencies. These discrepancies may be attributed to differences in research settings, observation periods, and data analysis techniques. Nevertheless, this study focuses on presenting findings that are theoretically grounded and relevant to the existing literature. In line with this, the main objective of this research is to examine the impact of the spin-off decision on financing risk in Islamic banking in Indonesia—an aspect that has not been previously explored. The study also incorporates control variables, including internal bank conditions (bank size and market share) and macroeconomic indicators (inflation, economic growth, and oil price). The conceptual framework is illustrated in Figure 1, and the hypotheses are formulated as follows: H 1 : The spin-off decision has a negative effect on financing risk H 2 : Bank size has a positive effect on financing risk H 3 : Market share has a positive effect on financing risk H 4 : Inflation has a positive effect on financing risk H 5 : Economic growth has a negative effect on financing risk H 6 : Oil price has a negative effect on financing risk" Reviewer’s Suggestion 4: Methods The methodology is rigorous and well-explained, but it assumes familiarity with GMM among readers. The rationale for choosing specific macroeconomic variables should be expanded. Justify why inflation and oil prices were included as control variables. Data collection methods are clearly documented, but more details on handling missing data would strengthen credibility. More details on how missing data was handled would strengthen credibility. Authors’ response: Thank you for your feedback. We have provided a relatively detailed explanation regarding the use of GMM, covering its advantages, lag selection, instrument validity, etc. Furthermore, we offer the following additional clarification: “This approach was adopted to mitigate several underlying problems commonly encountered in panel data, specifically endogeneity, heteroskedasticity, and autocorrelation.” Furthermore, the selection of inflation and economic growth as macroeconomic variables was based on their common usage in the context of Islamic banking. Meanwhile, oil price was chosen because this variable is very rarely associated with Islamic banking performance, including financing risk. Subsequently, incomplete data were excluded from the analysis, leading us to employ an unbalanced panel data model. Consequently, only observations containing complete data were included in the estimation. This can be observed in Table 2 where the total data amounts to 1032 observations, while the final estimation in Table 4 only utilizes 948 observations. Reviewer’s Suggestion 5: Results and Discussion The interaction term (Spin-off × Size) needs a clearer interpretation. Managerial and policy implications should be expanded beyond statistical results. The empirical results are robust and align with previous studies, but some explanations are too technical for non-expert readers. The discussion connects well with the literature, but it could further explain why larger spin-off banks face higher risks. Clarification of Interaction Term (Spin-off × Size): The interpretation of why larger spin-off banks face higher risk needs more depth. Policy recommendations could be better integrated into this section rather than leaving them mostly in the conclusion. Authors’ response : We have refined the Discussion section to enhance its accessibility for a broader audience, including non-expert readers. Specifically, we have incorporated additional explanations to clarify the impact of the interaction variable (as detailed in the fifth paragraph) and macroeconomic factors (the seventh paragraph) on financing risk. This was done by providing more intuitive interpretations of the statistical findings, drawing analogies to real-world scenarios, and simplifying complex economic relationships without sacrificing the rigor of our analysis. “This is further supported by the significant positive effect of the interaction variable (spinoff*size), indicating that larger Islamic banks undergoing spin-offs face elevated financing risk compared to smaller ones. As highlighted by Trinugroho et al., (2021), the multifaceted nature of financing contracts in Islamic banking substantially elevates the risk of non-performing financing. Consequently, substantial asset expansion and spin-off implementation carry inherent risks that can be amplified by insufficient managerial readiness, making it harder to maintain financing quality.” “On the other hand, economic growth and inflation exhibit inconsistent results across different model specifications. Inflation generally exerts a positive influence on financing risk, as observed in models 2, 6, and 8. This finding aligns with previous studies, which suggests that inflation can reduce purchasing power, leading to increased loan defaults (Awdeh et al., 2024; Patiu & Eleazar, 2024). However, the impact of economic growth on financing risk is more nuanced, with negative effects observed in the difference GMM estimation and positive effects in the system GMM estimation. This discrepancy might be attributed to the non-linear relationship between economic growth and NPF. The difference GMM method may suggest short-term effects, potentially indicating that during periods of economic expansion, borrowers exhibit a higher propensity for timely repayment. Conversely, the system GMM method, which is considered to provide more robust estimates overall, may reveal longer-term effects. Over extended periods of strong economic growth, banks may exhibit increased lending appetite and potentially relax credit standards, leading to a higher incidence of future repayment difficulties (Castro, 2013; Huizinga & Laeven, 2019; Mongid et al., 2023). Furthermore, this divergence in results may be explained by the finite sample bias in difference GMM, which relies solely on the differenced data, discarding level information.” We acknowledge the reviewer's valuable suggestion to elaborate on policy recommendations within the discussion section to provide immediate context and justification. However, we have made a deliberate decision to retain the policy recommendations in the conclusion section. Our rationale for this placement is to ensure that the recommendations are presented as a direct and concise culmination of the entire analysis. By positioning them at the end, we aim to offer policymakers and other readers a readily accessible summary of the key actionable insights derived from our research. This structure allows readers to first grasp the full scope of our findings and their implications before focusing on the specific policy implications. We believe this approach enhances the clarity and impact of our recommendations as a direct takeaway from the study's overall conclusions. Reviewer’s Suggestion 6: Conclusion Should differentiate theoretical contributions from practical implications. Authors’ response : We have refined the narrative, separating the empirical and theoretical contributions as follows: “Empirically, our findings reveal that Islamic windows carry a higher risk compared to full-fledged Islamic banks that undergo spin-offs. We also discover that spin-off Islamic banks with larger assets are more exposed to risk than those with smaller assets. This notice is supported by the regression that financing risk increases with the growth of assets and market share. Theoretically, this research contributes to the broader understanding of Islamic banking dynamics by providing empirical evidence on the risk implications of organizational structure transformation. Specifically, it highlights the potential risk reduction associated with the increased autonomy and focused operational framework of independent Islamic banks post-spin-off.” Future research suggestions are too general and need more specific directions. Authors’ response : We have refined the narrative as follows: “Furthermore, incorporating a broader range of internal (such as market concentration, market power, types of financing, operating expense ratio, etc) and external variables (exchange rate, money supply, etc), as well as expanding the analysis to include Islamic banks in countries that have implemented spin-offs, such as Saudi Arabia, Pakistan, Kuwait, etc., would provide a more comprehensive understanding of the phenomenon.” Reviewer’s Suggestion 7: References Should add more recent studies (post-2022). Include cross-country comparisons to strengthen global relevance. Authors’ response : Thank you for your constructive feedback. We have now incorporated additional relevant references, including cross-country studies and publications from 2022 onwards, to further strengthen the theoretical grounding and contextual relevance of our findings. Addou, K. I., Boulanouar, Z., Anwer, Z., Bensghir, A., & Ramadilli Mohammad, S. M. (2024). The impact of Basel III regulations on solvency and credit risk-taking behavior of Islamic banks. International Journal of Islamic and Middle Eastern Finance and Management , 17 (5), 915–935. https://doi.org/10.1108/IMEFM-05-2024-0248 Nasir, M. S., Oktaviani, Y., & Andriyani, N. (2022). Determinants of Non-Performing Loans and Non-Performing Financing level: Evidence in Indonesia 2008-2021. Banks and Bank Systems , 17 (4), 116–128. https://doi.org/10.21511/bbs.17(4).2022.10 Pratami, A., Afandi, A., Sriyana, J., & Feriyanto, N. (2023). The Role of Financing Models and Credit Risk on Islamic Bank Stability. Cuadernos de Economía , 46 (131), 43–53. Shah, S. A. A., Fianto, B. A., Sheikh, A. E., Sukmana, R., Kayani, U. N., & Bin Ridzuan, A. R. (2023). Role of fintech in credit risk management: an analysis of Islamic banks in Indonesia, Malaysia, UAE and Pakistan. Journal of Science and Technology Policy Management , 14 (6), 1128–1154. https://doi.org/10.1108/JSTPM-06-2022-0104 Sriyana, J. (2015). Islamic banks’ profitability amid the competitive financing in Indonesia. International Journal of Applied Business and Economic Research , 13 (4), 1695–1710. Sutrisno, Widarjono, A., & Mohamad, M. (2023). Does Financing Diversification Improve Bank Risk? Evidence From Indonesian Islamic Rural Banks. International Journal of Economics and Finance Studies , 15 (4), 103–124. https://doi.org/10.34109/ijefs.202315406 Warninda, T. D., Ekaputra, I. A., & Rokhim, R. (2019). Do Mudarabah and Musharakah financing impact Islamic Bank credit risk differently? Research in International Business and Finance , 49 , 166–175. https://doi.org/10.1016/j.ribaf.2019.03.002 View more View less Competing Interests none reply Respond Report a concern Suprayitno E. Peer Review Report For: Influence of spin-off decision on financing risk: Empirical insight from Indonesian Islamic banks [version 3; peer review: 3 approved, 1 approved with reservations] . F1000Research 2025, 13 :1251 ( https://doi.org/10.5256/f1000research.176913.r372130) NOTE: it is important to ensure the information in square brackets after the title is included in this citation. The direct URL for this report is: https://f1000research.com/articles/13-1251/v2#referee-response-372130 keyboard_arrow_left Back to all reports Reviewer Report 0 Views copyright © 2025 Mutamimah M. This is an open access peer review report distributed under the terms of the Creative Commons Attribution License , which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. 06 Feb 2025 | for Version 2 Mutamimah Mutamimah , Universitas Islam Sultan Agung, Semarang, Central Java, Indonesia 0 Views copyright © 2025 Mutamimah M. This is an open access peer review report distributed under the terms of the Creative Commons Attribution License , which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. format_quote Cite this report speaker_notes Responses (0) Approved info_outline Alongside their report, reviewers assign a status to the article: Approved The paper is scientifically sound in its current form and only minor, if any, improvements are suggested Approved with reservations A number of small changes, sometimes more significant revisions are required to address specific details and improve the papers academic merit. Not approved Fundamental flaws in the paper seriously undermine the findings and conclusions Ok, thanks for your revision. This suite with my suggestion. Good luck Competing Interests No competing interests were disclosed. Reviewer Expertise Economics, Management, Financial Management I confirm that I have read this submission and believe that I have an appropriate level of expertise to confirm that it is of an acceptable scientific standard. reply Respond to this report Responses (0) Mutamimah M. Peer Review Report For: Influence of spin-off decision on financing risk: Empirical insight from Indonesian Islamic banks [version 3; peer review: 3 approved, 1 approved with reservations] . F1000Research 2025, 13 :1251 ( https://doi.org/10.5256/f1000research.176913.r364511) NOTE: it is important to ensure the information in square brackets after the title is included in this citation. The direct URL for this report is: https://f1000research.com/articles/13-1251/v2#referee-response-364511 keyboard_arrow_left Back to all reports Reviewer Report 0 Views copyright © 2025 Mutamimah M. This is an open access peer review report distributed under the terms of the Creative Commons Attribution License , which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. 10 Jan 2025 | for Version 1 Mutamimah Mutamimah , Universitas Islam Sultan Agung, Semarang, Central Java, Indonesia 0 Views copyright © 2025 Mutamimah M. This is an open access peer review report distributed under the terms of the Creative Commons Attribution License , which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. format_quote Cite this report speaker_notes Responses (1) Approved With Reservations info_outline Alongside their report, reviewers assign a status to the article: Approved The paper is scientifically sound in its current form and only minor, if any, improvements are suggested Approved with reservations A number of small changes, sometimes more significant revisions are required to address specific details and improve the papers academic merit. Not approved Fundamental flaws in the paper seriously undermine the findings and conclusions The article is well written and meets the rules for good articles. The problem formulation is based on research gaps from previous research results. Apart from that, the research method is also appropriate, including the indicators, and statistical analysis and results. However, researchers need to attach the year in which the Islamic banking spin-off was carried out, because each Islamic banking spin-off is different. In table 2 about Descriptive analysis of variables, the description of each variable should be explained well. Furthermore, in conclusion, it must have limitations and future research agenda. It would be good to explain why the research did not analyze financing risks before the spin-off, so there will be a difference between before the spin-off and after the spin-off. Good luck! Is the work clearly and accurately presented and does it cite the current literature? Yes Is the study design appropriate and is the work technically sound? Yes Are sufficient details of methods and analysis provided to allow replication by others? Yes If applicable, is the statistical analysis and its interpretation appropriate? Yes Are all the source data underlying the results available to ensure full reproducibility? Yes Are the conclusions drawn adequately supported by the results? Yes Competing Interests No competing interests were disclosed. Reviewer Expertise Economics, Management, Financial Management I confirm that I have read this submission and believe that I have an appropriate level of expertise to confirm that it is of an acceptable scientific standard, however I have significant reservations, as outlined above. reply Respond to this report Responses (1) Author Response 04 Feb 2025 Zulfikar Bagus Pambuko, Islamic Economics Law, Universitas Muhammadiyah Magelang, Magelang, Indonesia We would like to warmly thank you for reading our manuscript and your valuable comments which would substantially improve our paper. We have followed carefully all your comments in the preparation of the revised version of the paper. Our revisions are summarized below. Reviewer’s Suggestion 1: The article is well written and meets the rules for good articles. The problem formulation is based on research gaps from previous research results. Apart from that, the research method is also appropriate, including the indicators, and statistical analysis and results. However, researchers need to attach the year in which the Islamic banking spin-off was carried out, because each Islamic banking spin-off is different. Authors’ Response: Following your insightful suggestion, we have revised the Method section to provide a more comprehensive overview of the restructuring processes within the Indonesian Islamic banking industry. The newly added paragraph, which details historical data on spin-offs, conversions, and mergers, directly addresses your feedback regarding the need for more specific examples. “The Indonesian Islamic banking landscape has witnessed various restructuring strategies. Pure spin-offs were employed by banks such as Bukopin Syariah (2008), BNI Syariah (2008), BRI Syariah (2010), BJB Syariah (2010), and Bank Nano Syariah (2024). Conversion, another common approach, was adopted by BTPN Syariah (2014), Bank Aceh Syariah (2016), BPD NTB Syariah (2018), and BPD Riau Kepri Syariah (2022). The formation of Bank Syariah Indonesia in 2021 marked a significant merger in the sector. Moreover, a combination of acquisition and conversion was utilized sequentially by banks including Bank Panin Dubai Syariah (2009), Bank Victoria Syariah (2010), BCA Syariah (2010), and Bank Aladin Syariah (2010).” Reviewer’s Suggestion 2: In table 2 about Descriptive analysis of variables, the description of each variable should be explained well. Authors’ Response: Thank you for your valuable feedback. We have addressed your concerns regarding variable descriptions in the descriptive analysis. “Table 2 presents descriptive statistics for the variables spanning from 2006 to 2022. The average value of NPF, as a financing risk proxy, stands at 3.10%, remaining below the generally accepted upper limit of 5.00%. The lowest NPF value, at 0.00%, indicates that some Islamic banks exhibit no risky financing, while the highest recorded NPF value is 53.27%. This relatively high variability is supported by a standard deviation of 4.17%. SPINOFF, a dummy variable, has a mean of 0.27, indicating that spin-off events are relatively rare. Its standard deviation of 0.45 suggests moderate variability in occurrence. Regarding assets and market share, the lower mean values compared to the standard deviation suggest that Islamic banks in Indonesia are still dominated by a few larger banks, reflecting differences in institutional capacity and market reach. Similarly, the Consumer Price Index (CPI) and Industrial Production Index (IPI) show moderate variability, with standard deviations of 2.70 and 18.33, respectively, reflecting macroeconomic conditions that influence Islamic banking performance. Oil prices (OIL), a critical variable for resource-dependent economies, have a mean of IDR 0.86 million per barrel, with relatively stable fluctuations (standard deviation of 0.28). This stability contrasts with the high variability observed in institutional size and non-performing financing. Overall, the descriptive analysis underscores significant heterogeneity in institutional characteristics and economic factors, suggesting the need for tailored strategies in managing Islamic banks. Institutions must address wide disparities in size and market share, ensuring resilience to external economic conditions such as inflation, industrial output fluctuations, and oil price volatility.” Reviewer’s Suggestion 3: Furthermore, in conclusion, it must have limitations and future research agenda. It would be good to explain why the research did not analyze financing risks before the spin-off, so there will be a difference between before the spin-off and after the spin-off. Good luck! Authors’ Response: We appreciate your insightful comments. We have added the limitations and future research opportunities to the conclusion section. “The present study has identified several limitations. The utilization of a dummy variable to assess the impact of spin-offs on financing risk, while effective in capturing the immediate effects of regulatory policies, may not fully account for the nuanced dynamics at play. Moreover, the study's scope is constrained by the use of semi-annual data up to 2022 and its focus on the Indonesian Islamic banking industry. To address these limitations, future research could benefit from employing a difference-in-differences analysis to more precisely estimate the causal impact of spin-offs. Furthermore, incorporating a broader range of internal and external variables, as well as expanding the analysis to include Islamic banks in Southeast Asia or OIC countries, would provide a more comprehensive understanding of the phenomenon.” View more View less Competing Interests none reply Respond Report a concern Mutamimah M. Peer Review Report For: Influence of spin-off decision on financing risk: Empirical insight from Indonesian Islamic banks [version 3; peer review: 3 approved, 1 approved with reservations] . F1000Research 2025, 13 :1251 ( https://doi.org/10.5256/f1000research.172879.r353263) NOTE: it is important to ensure the information in square brackets after the title is included in this citation. The direct URL for this report is: https://f1000research.com/articles/13-1251/v1#referee-response-353263 keyboard_arrow_left Back to all reports Reviewer Report 0 Views copyright © 2024 Ibrahim A. This is an open access peer review report distributed under the terms of the Creative Commons Attribution License , which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. 07 Nov 2024 | for Version 1 Azharsyah Ibrahim , Universitas Islam Negeri Ar-Raniry, Banda Aceh, Indonesia 0 Views copyright © 2024 Ibrahim A. This is an open access peer review report distributed under the terms of the Creative Commons Attribution License , which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. format_quote Cite this report speaker_notes Responses (1) Approved With Reservations info_outline Alongside their report, reviewers assign a status to the article: Approved The paper is scientifically sound in its current form and only minor, if any, improvements are suggested Approved with reservations A number of small changes, sometimes more significant revisions are required to address specific details and improve the papers academic merit. Not approved Fundamental flaws in the paper seriously undermine the findings and conclusions Summary This paper investigates the impact of the spin-off decision (Islamic windows separating from conventional banks to become independent Islamic banks) on financing risk in Indonesian Islamic banks. Using semi-annual data from 2006-2022 for 35 Islamic banks, the study employs a dynamic panel model with Generalized Method of Moments (GMM) estimation. The key finding is that spin-offs significantly reduce financing risk, particularly for larger banks. The study also finds that larger Islamic banks and those with a higher market share generally face higher financing risk. The negative correlation between oil prices and non-performing financing suggests that increasing oil prices may indirectly benefit Islamic banks by stimulating the economy. Evaluation Is the work clearly and accurately presented and does it cite the current literature? Partly. While the presentation is generally clear, some areas could benefit from more precise language and further elaboration. The literature review, while extensive, could be structured more thematically to better highlight the existing research gaps and the study's contribution. Some cited works appear very recent (2023-2024) and I am unable to verify their accessibility/existence given my current knowledge cutoff. It's important to ensure all cited works are publicly accessible. Is the study design appropriate and is the work technically sound? Partly. The use of a dynamic panel model with GMM is appropriate for addressing potential endogeneity. However, the justification for using the OPEC basket price as a sole indicator of global oil prices could be strengthened. A broader measure or a combination of indicators might be more representative. Additionally, more detail on the specific GMM implementation (e.g., lag selection, instrument validity tests beyond Sargan) would enhance the technical soundness. Are sufficient details of methods and analysis provided to allow replication by others? Partly. While the data sources are mentioned, the specific variables used within the model (e.g., how "market share" is calculated) could be more explicitly defined. The provided dataset link on Zenodo was checked and is accessible. However, clear instructions on how to merge the bank-specific data with the macroeconomic data are necessary for full replication. More detail on the GMM implementation is also needed (as mentioned above). If applicable, is the statistical analysis and its interpretation appropriate? Partly. The interpretation of the results generally aligns with the findings. However, the discussion of the inconsistent results for economic growth and inflation could be improved. Exploring potential reasons for these inconsistencies or considering alternative model specifications might provide more robust insights. Furthermore, while the Sargan test is reported, more comprehensive diagnostics related to the GMM estimation would strengthen the analysis. Are all the source data underlying the results available to ensure full reproducibility? Yes. The data sources are listed and the Zenodo link provides the bank-level data. The macroeconomic data sources are also publicly accessible. However, as noted above, clearer instructions on data merging are needed. Are the conclusions drawn adequately supported by the results? Partly. The main conclusion regarding the positive impact of spin-offs on reducing financing risk is supported by the findings. However, the claim that larger spin-off banks are more exposed to risk needs further clarification. While the results show that size increases risk in general, it's not entirely clear from the presented analysis whether this effect is amplified after the spin-off, or if larger banks simply start at a higher risk level pre-spin-off. More nuanced analysis and discussion are needed to fully support this specific conclusion. Specific Recommendations for Improvement: Literature Review: Organize the literature thematically and clearly articulate the research gap being addressed. Verify the accessibility of all cited works. Methodology: Provide a stronger justification for the choice of oil price indicator. Elaborate on the specific GMM implementation details (lag selection, instrument details, and robustness checks). Data and Replication: Provide clear definitions of all variables, including calculations. Include detailed instructions on how to merge the datasets used. Statistical Analysis: Explore reasons for the inconsistent results of control variables. Provide more comprehensive GMM diagnostics. Conclusion: Refine the discussion about the impact of size on risk for spin-off banks. Provide clearer evidence to support the claim of increased risk for larger spin-off banks compared to smaller ones. Consider separating the impact of size on risk in general from the specific impact on spin-off banks. Is the work clearly and accurately presented and does it cite the current literature? Partly Is the study design appropriate and is the work technically sound? Partly Are sufficient details of methods and analysis provided to allow replication by others? Partly If applicable, is the statistical analysis and its interpretation appropriate? Partly Are all the source data underlying the results available to ensure full reproducibility? Yes Are the conclusions drawn adequately supported by the results? Partly Competing Interests No competing interests were disclosed. Reviewer Expertise Islamic management, banking, and finance I confirm that I have read this submission and believe that I have an appropriate level of expertise to confirm that it is of an acceptable scientific standard, however I have significant reservations, as outlined above. reply Respond to this report Responses (1) Author Response 04 Feb 2025 Zulfikar Bagus Pambuko, Islamic Economics Law, Universitas Muhammadiyah Magelang, Magelang, Indonesia We would like to warmly thank you for reading our manuscript and your valuable comments which would substantially improve our paper. We have followed carefully all your comments in the preparation of the revised version of the paper. Our revisions are summarized below. Reviewer’s Suggestion 1: Is the work clearly and accurately presented and does it cite the current literature? Partly. While the presentation is generally clear, some areas could benefit from more precise language and further elaboration. The literature review, while extensive, could be structured more thematically to better highlight the existing research gaps and the study's contribution. Some cited works appear very recent (2023-2024) and I am unable to verify their accessibility/existence given my current knowledge cutoff. It's important to ensure all cited works are publicly accessible. Authors’ Response: We would like to express our gratitude for your valuable feedback in enhancing the quality of our article. In response to your suggestion, we have incorporated a dedicated section on literature review as follows: “ Literature Review The management of bad financing or non-performing financing (NPF) presents a critical challenge for Islamic banking institutions in Indonesia (Imaduddin, 2008; Nugroho et al., 2018; Soekapdjo et al., 2018). Non-performing financing, characterized by loans or financing contracts in default or at risk of default, can have far-reaching implications on the stability and credibility of financial institutions (Hernawati et al., 2021). In traditional banking, its known as non-performing loan (NPL). The existence of financing risk can hinder the stability of Islamic banking entities, potentially jeopardizing their capacity to facilitate economic growth and foster financial inclusivity (Banna et al., 2022). Considering the distinct characteristics of Islamic finance, rooted in risk-sharing and asset-backed principles, a comprehensive exploration of how spin-off decisions influence financing risk, specifically non-performing financing, requires further investigation. Bank-specific factors influencing financing risk Research on NPF in Islamic banking and NPL in conventional banking reveals that various internal and external factors influence financing risk. For conventional banks, external factors such as macroeconomic conditions play a dominant role in shaping NPL levels, while in Islamic banks, both internal and external factors significantly affect NPF (Loang et al., 2023; Setiawan et al., 2017). Among bank-specific factors, an increase in NPF is associated with variables such as bank size, operating efficiency ratio, liquid asset ratio, financing-to-deposit ratio, and foreign ownership (Havidz & Setiawan, 2015; Hosen & Muhari, 2019; Osunkoya et al., 2023; Rahim & Zakaria, 2013; Saw et al., 2022; Zheng et al., 2019). Conversely, factors that contribute to a reduction in NPF include higher net operating profit, capital adequacy ratio, return on assets, cost-to-income ratio, deposit fund growth, return on equity, loan growth, and market concentration (Hartanto & Samputra, 2023; Hosen & Muhari, 2019; Muhammad et al., 2020; Rahim & Zakaria, 2013; Zheng et al., 2019). Macroeconomic factors influencing financing risk Macroeconomic conditions also significantly impact the level of financing risk in Islamic banks. Negative economic indicators such as exchange rate fluctuations, inflation, and economic policy uncertainty have been found to increase NPF levels (Firmansyah, 2014; Hosen & Muhari, 2019; Karadima & Louri, 2021; Osunkoya et al., 2023; Zheng et al., 2019). On the other hand, positive macroeconomic trends such as GDP growth and reduced unemployment contribute to a decrease in NPF (Ferhi, 2018; Hassan et al., 2019; Hernawati et al., 2021; Le & Diep, 2020; Zheng et al., 2019). Additionally, a surplus in foreign exchange reserves can trigger a financing boom, which may subsequently affect financing quality and contribute to increased NPF levels (Kuncoro, 2024).” Reviewer’s Suggestion 2: Is the study design appropriate and is the work technically sound? Partly. The use of a dynamic panel model with GMM is appropriate for addressing potential endogeneity. However, the justification for using the OPEC basket price as a sole indicator of global oil prices could be strengthened. A broader measure or a combination of indicators might be more representative. Additionally, more detail on the specific GMM implementation (e.g., lag selection, instrument validity tests beyond Sargan) would enhance the technical soundness. Authors’ Response: We have added an explanation regarding the use of the OPEC basket price in the “Method” section. “This price serves as a crucial benchmark in determining crude oil prices in the global market, including Indonesia, although it is merely one of many indicators influenced by various complex factors.” Additionally, we have provided a more detailed explanation of lag selection in GMM estimation. “A lag order of one (lag 1) was used for estimation” Reviewer’s Suggestion 3: Are sufficient details of methods and analysis provided to allow replication by others? Partly. While the data sources are mentioned, the specific variables used within the model (e.g., how "market share" is calculated) could be more explicitly defined. The provided dataset link on Zenodo was checked and is accessible. However, clear instructions on how to merge the bank-specific data with the macroeconomic data are necessary for full replication. More detail on the GMM implementation is also needed (as mentioned above). Authors’ Response: Thank you for the suggestion. Supplementary information regarding the variables has been provided in Table 1. “Non-performing financing is the ratio of bad financing by total financing” “Inflation is measured using the Consumer Price Index (CPI), which compares the total cost of a fixed basket of goods and services in the current period to the cost of the same basket in a base period” “Economic growth is measured using the Industrial Production Index (IPI), which is calculated by dividing the value of production in a specific period by the value of production in the base year 2010.” The data used in this study is a combination of panel data (internal data from Islamic banks) and time series data (macroeconomic data). For the macroeconomic data, we ensured that the estimation periods aligned, and duplicated the time series data for each Islamic bank observation. Given the unbalanced nature of the panel data, macroeconomic data was only added to complete Islamic bank observations. Reviewer’s Suggestion 4: If applicable, is the statistical analysis and its interpretation appropriate? Partly. The interpretation of the results generally aligns with the findings. However, the discussion of the inconsistent results for economic growth and inflation could be improved. Exploring potential reasons for these inconsistencies or considering alternative model specifications might provide more robust insights. Furthermore, while the Sargan test is reported, more comprehensive diagnostics related to the GMM estimation would strengthen the analysis. Authors’ Response: Following the reviewer’s suggestion, we have enhanced the discussion of economic growth and inflation in the “empirical results” section. Furthermore, we have provided a more detailed statistical analysis to elucidate the differences between the difference GMM and system GMM estimators. “On the other hand, economic growth and inflation exhibit inconsistent results across different model specifications. Inflation generally exerts a positive influence on financing risk, as observed in models 2, 6, and 8. This finding aligns with previous studies, which suggests that inflation can reduce purchasing power, leading to increased loan defaults (Awdeh et al., 2024; Patiu & Eleazar, 2024). However, the impact of economic growth on financing risk is more nuanced, with negative effects observed in the difference GMM estimation and positive effects in the system GMM estimation. This discrepancy might be attributed to the non-linear relationship between economic growth and NPF, where difference GMM captures short-term effects while system GMM captures long-term effects. The positive relationship in the system GMM, which is considered to provide more robust estimates, may reflect the potential for credit booms during periods of economic expansion, leading Islamic banks to loosen lending standards (Castro, 2013; Huizinga & Laeven, 2019; Mongid et al., 2023). Furthermore, this divergence in results may be explained by the finite sample bias in difference GMM, which relies solely on differences across time periods and excludes the level data.” Reviewer’s Suggestion 5: Are all the source data underlying the results available to ensure full reproducibility? Yes. The data sources are listed and the Zenodo link provides the bank-level data. The macroeconomic data sources are also publicly accessible. However, as noted above, clearer instructions on data merging are needed. Authors’ Response: Thank you for the suggestion. The data used in this study is a combination of panel data (internal data from Islamic banks) and time series data (macroeconomic data). For the macroeconomic data, we ensured that the estimation periods aligned, and duplicated the time series data for each Islamic bank observation. Given the unbalanced nature of the panel data, macroeconomic data was only added to complete Islamic bank observations. Reviewer’s Suggestion 6: Are the conclusions drawn adequately supported by the results? Partly. The main conclusion regarding the positive impact of spin-offs on reducing financing risk is supported by the findings. However, the claim that larger spin-off banks are more exposed to risk needs further clarification. While the results show that size increases risk in general, it's not entirely clear from the presented analysis whether this effect is amplified after the spin-off, or if larger banks simply start at a higher risk level pre-spin-off. More nuanced analysis and discussion are needed to fully support this specific conclusion. Authors’ Response: The conclusion that larger spin-off banks are more exposed to risk is derived from the interaction variables between the spin-off and size variables (spinoff*size), as detailed in the fifth paragraph of the "Empirical Results" section. “Furthermore, these results are corroborated by the estimations of the interaction variable (spinoff*size), which significantly influences non-performing financing. Thus, larger Islamic banks that undergo spin-offs carry a higher financing risk compared to smaller banks. As highlighted by Trinugroho et al., (2021), the multifaceted nature of financing contracts in Islamic banking substantially elevates the risk of non-performing financing.” Specific Recommendations for Improvement: Reviewer’s Suggestion 7: Literature Review: Organize the literature thematically and clearly articulate the research gap being addressed. Verify the accessibility of all cited works. Authors’ Response: Please refer to response number 1. Reviewer’s Suggestion 8: Methodology: Provide a stronger justification for the choice of oil price indicator. Elaborate on the specific GMM implementation details (lag selection, instrument details, and robustness checks). Authors’ Response: Please refer to response number 2. Reviewer’s Suggestion 9: Data and Replication: Provide clear definitions of all variables, including calculations. Include detailed instructions on how to merge the datasets used. Authors’ Response: Please refer to response number 4. Reviewer’s Suggestion 10: Statistical Analysis: Explore reasons for the inconsistent results of control variables. Provide more comprehensive GMM diagnostics. Authors’ Response: Based on the literature review, our implementation of the GMM model adheres to the established guidelines. While inconsistencies in the estimation results between difference GMM and system GMM for some variables are common, the inconsistencies in the spin-off, size, and IPI variables might be attributed to endogeneity issues better addressed by system GMM or measurement errors in difference GMM. This can be explained by the inherent differences between the two estimators. Difference GMM uses first differences to eliminate fixed effects, whereas system GMM combines instruments from both first differences and levels, allowing it to capture more of the variability in the data (The preceding explanation offers a more in-depth analysis of response number 4). Reviewer’s Suggestion 11: Conclusion: Refine the discussion about the impact of size on risk for spin-off banks. Provide clearer evidence to support the claim of increased risk for larger spin-off banks compared to smaller ones. Consider separating the impact of size on risk in general from the specific impact on spin-off banks. Authors’ Response: we have explained separately in the last 2 paragraphs in the Results and Discussion section related to the general impact of size on NPF, followed by a specific examination of the interaction between spin-off and size on NPF. The positive interaction term between spin-off and size (spinoff*size) on Table 4 suggests an increased risk of NPF for larger spin-off banks. we have also added a supporting statement, “As highlighted by Trinugroho et al., (2021), the multifaceted nature of financing contracts in Islamic banking substantially elevates the risk of non-performing financing.” View more View less Competing Interests none reply Respond Report a concern Ibrahim A. Peer Review Report For: Influence of spin-off decision on financing risk: Empirical insight from Indonesian Islamic banks [version 3; peer review: 3 approved, 1 approved with reservations] . 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