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Differential market valuations of board busyness across alternative banking models

Marwa Elnahass (), Kamil Omoteso, Aly Salama and Vu Quang Trinh
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Marwa Elnahass: Newcastle University
Kamil Omoteso: University of Derby
Aly Salama: Newcastle University
Vu Quang Trinh: University of Huddersfield

Review of Quantitative Finance and Accounting, 2020, vol. 55, issue 1, No 7, 238 pages

Abstract: Abstract This study comparatively assesses the influence of board busyness (i.e., multiple directorships of outside directors) on stock market valuations of both Islamic and conventional banks. For a sample of listed banks from 11 countries for the period 2010–2015, results show that board busyness is differentially priced by investors depending on the bank type. In conventional banks, board busyness is significantly and positively valued by the stock market. This result suggests that investors perceive some reputational benefits arising from a busy board (e.g., extended industry knowledge, established external networks or facilitation of external market sources). In contrast, we find no supporting evidence on the market valuations of board busyness in Islamic banks. This result might be attributed to, both, the complex governance structure and the uniqueness of the business model which require additional effective monitoring, relative to that employed in conventional banking. Our results also show that investors provide significantly low market valuations for busy Shari’ah advisory board which acts as an additional layer of governance in Islamic banks. Findings in this study offer important policy implications to international banking studies and regulations governing countries with dual-banking systems.

Keywords: Firm valuations; Board busyness; Banking systems; Stock market (search for similar items in EconPapers)
JEL-codes: C23 G01 G21 G28 L50 M41 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s11156-019-00841-4

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