DIVIDEND SIGNALING HYPOTHESIS AND SHORT-TERM ASSET CONCENTRATION OF ISLAMIC INTEREST-FREE BANKING

M. Kabir Hassan, Joseph Farhat and Bashir Al-Zu'bi
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Joseph Farhat: Department of Economics and finance, University of New Orleans,, Postal: New Orleans, LA 70148
Bashir Al-Zu'bi: Department of Economics, University of Jordan,, Postal: Amman, Jordan

Islamic Economic Studies, 2003, vol. 11-1, 2-30

Abstract: This paper finds that the dividend signaling hypothesis is able to explain the phenomenon of asset concentration in short- and medium-term investments in the Islamic interest-free banking system. To maintain a stable dividend payout, managers of Islamic banks will prefer to invest in instruments with more certain returns. This leads to concentration in short and medium term mark-up based investments. Our results show that dividends in Islamic banks are stable. Bank earnings are a major source of this stability. We also find that short- and mediumterm investments are more important in generating earnings than long-term investments.

Date: 2003
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Related works:
Working Paper: Dvidend Signaling Hypothesis and Short-Term Asset Concentration of Islamic Interest-free Banking (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:ris:isecst:0072

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