The impact of corporate image on customer loyalty of Islamic Banks in Malaysia: integrating resource-based and institutional theory

Abstract

The development of Islamic banks in Malaysia is increasingly challenging with more banks offering products and services based on Islamic principles. Hence, this study explores customers’ perception pertaining to corporate image and their adoption of Islamic banking, besides their attitudinal and behavioural loyalty towards their most preferred Islamic bank in Malaysia. Resource based theory, as well as institutional theory was exploited as the theoretical foundation for developing the conceptual model. Accordingly, data was collected firstly, through an exploratory study, by interviewing customers, Shar??ah supervisors, practitioners and lecturers of Islamic banking. Next, ‘self-administered questionnaires were distributed among 600 customers of Islamic banks in Kuala Lumpur through convenience sampling, specifically in selected Islamic banks, shopping malls and stations of public transportation. Analysis of data was then conducted using descriptive, exploratory and confirmatory factor analysis. Subsequently, structural equation modelling with 308 respondents was then conducted to test the hypothesized relationships among the constructs, as postulated in the model. Ten hypothesis links are supported, while eleven are rejected. Results indicate that firstly, corporate image of Islamic banks are determined by institutional image and performative image. Performative image constitutes items including friendliness, reliability, honesty, security, achievement-orientation, leading-orientation, up-to-date and excitement. In consequence, institutional image is represented by god-consciousness, which encompasses being Islamic, humbleness, fairness and trustworthiness. Surprisingly, corporate social responsibility is verified insignificant. Nevertheless, performative image is found to be more important than institutional image by the customers of Islamic banks. Secondly, corporate image has an impact on organizational legitimacy, as well as customers’ adoption of Islamic banking. Thirdly, and most importantly, organizational legitimacy mediates the relationship between corporate image, attitudinal and behavioural loyalty, while it signifies as a partial mediator between corporate image and customers’ adoption of Islamic banking. Fourth, attitudinal loyalty is found to have no effect on behavioural loyalty. Finally, only gender serves as a moderator in this study. It is hoped that this study would facilitate the development of corporate image in Islamic banks, especially in facing strong competition from the foreign banks.