Board busyness and new insights into alternative bank dividends models

Vu Quang Trinh (), Marwa Elnahass and Aly Salama
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Vu Quang Trinh: Newcastle University
Marwa Elnahass: Newcastle University
Aly Salama: Northumbria University

Review of Quantitative Finance and Accounting, 2021, vol. 56, issue 4, No 3, 1289-1328

Abstract: 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 2007/2009, 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.

Keywords: Busy boards; Dividends policy; Bank type; Payouts model (search for similar items in EconPapers)
JEL-codes: C23 G01 G21 G28 L50 M4 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (7)

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DOI: 10.1007/s11156-020-00924-7

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