Dividend policy and religion: International evidence from firms with Islamic Label

Hamdi Ben-Nasr and Hatem H. Ghouma

Emerging Markets Review, 2022, vol. 50, issue C

Abstract: This paper builds on prior research and argues that religion, as an informal cultural institution, may impose constraints on corporations. The framework of Shariah-compliant firms presents a unique opportunity to investigate this assertion and checks whether firms with Islamic label pay out more or less dividend. Since Islamic Law narrows the investment opportunity sets for Shariah-compliant firms, one would expect Shariah-compliant firms to pay out more dividends to shareholders (investment constraint hypothesis). On the other hand, the prohibition of interest-bearing financing, make of retained earnings an appealing alternative to finance projects, hence resulting in lower dividend payouts (financing constraint hypothesis). Tests on a sample of 13,249 firm-year observations from 17 Islamic countries support the investment constraint hypothesis: Shariah-compliant firms pay out more dividends than non-Shariah compliant ones. Our results are robust to various specifications and after controlling for different variables and addressing potential endogeneity concerns.

Keywords: Dividend; Religion; Islamic label; Shariah-compliant firms (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:50:y:2022:i:c:s1566014121000480

DOI: 10.1016/j.ememar.2021.100840

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