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Board busyness and new insights into alternative bank dividends models

Lookup NU author(s): Dr Vu Trinh, Dr Marwa Elnahass, Dr Aly Salama

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This work is licensed under a Creative Commons Attribution 4.0 International License (CC BY 4.0).


Abstract

This study examines the possible opposing effects of the board function of busyness (i.e. the presence of busy independent non-executive directors serving on multiple boards) on bank dividend payout patterns between two alternative payouts models (i.e. conventional and Islamic). Using an international sample for listed banks during the periods of 2006-2018, we show that the busyness of boards of directors can explain differential dividend payouts behaviour between two banking systems. For conventional banking dividend model, a busy board has a significantly positive impact on the bank’s dividend payout level. However, during the financial crisis of 2007/9, the positive impact of board busyness on dividends payouts is tempered for these banks. In contrast, Islamic banks operating under a more constrained dividend model, report significantly lower levels of payouts and lower likelihood when they have busy directors on board. We find insignificant evidence for the effect of the financial crisis in Islamic banks. These results highlight a potential challenge for the unique agency conflicts arising from the complex payout model of Islamic banks (in terms of profit distribution principles, motives, mechanics and techniques, and flexibility of payouts), which is subject to the demand for greater monitoring and additional rulings when compared to the conventional.


Publication metadata

Author(s): Trinh VQ, Elnahass M, Salama A

Publication type: Article

Publication status: Published

Journal: Review of Quantitative Finance and Accounting

Year: 2020

Pages: Epub ahead of print

Online publication date: 28/08/2020

Acceptance date: 29/07/2020

Date deposited: 30/07/2020

ISSN (print): 0924-865X

ISSN (electronic): 1573-7179

Publisher: Springer New York LLC

URL: https://doi.org/10.1007/s11156-020-00924-7

DOI: 10.1007/s11156-020-00924-7


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