Board busyness and new insights into alternative bank dividends models

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.

Disclosure quality vis-à-vis disclosure quantity: Does audit committee matter in Omani financial institutions?

“…Several studies such as, Carpenter and Westphal (2001), Fich and Shivdasani (2006), Tanyi and Smith (2015) argue that since interlock directors being busy and stretched, such directors may provide less effective monitoring of management. In addition, Trinh et al (2020b) find that interlocked directors encounter with difficulties in resuming their monitoring roles diligently due to the limited time available from serving on several boards. This could create more conflicts of interests between shareholders and managers and viewed negatively by the stock market and investors in particular.…”

Do CEO Duality and Ownership Concentration Impact Dividend Policy in Emerging Markets? The Moderating Effect of Crises Period

“…According to Ahmed et al (2020), dividend policy is a "puzzle" whose determinants are still poorly understood. At the same time, the increase in additional research work on the DDP-like Taleb and Ben Lahouel (2020); Duqi et al (2020); Tahir et al (2020aTahir et al ( , 2020b; Endang et al (2020); Grey et al (2020); Juhmani (2020); Ahmed et al (2020); Thompson and Adasi Manu (2021); Ain et al (2021); Bataineh (2021); Dissanayake and Dissabandara (2021); Hasan et al (2021); Trinh et al (2021); El Ammari (2021) and even other authors-justifies the fact that this research topic is a topical subject and that the debate on the reality of this famous financial phenomenon is not yet closed and still requires heated debate.…”

Terrorist attacks and bank financial stability: evidence from MENA economies

“…While the majority of prior studies focused on operational, financial, macroeconomic and microeconomic determinants of banking financial stability (e.g., Chan and Milne 2014 ; Ashraf and Rizwan 2016; Rumler and Waschiczek 2016 ; Elnahass et al 2020a , b , 2021 ; Trinh et al 2020a ), limited attention has been paid to identifying the role of political stability in prompting bank stability. Accordingly, it remains questionable whether banks can still operate and mitigate risk during accelerating political events like terrorism, 1 particularly for those banks located in vulnerable countries.…”

“…Some have generally documented the presence of an association between terrorism and economic activities (De Mesquita 2005 ; Bardwell and Iqbal 2021 ), whilst others indicate that economic downturns are associated with high numbers of terrorist attacks (Blomberg et al 2004 ; Drakos and Gofas 2004 ; Efobi et al 2015 ). On the other hand, bank financial stability literature has commonly investigated issues related to corporate governance, risk monitoring and financial performance and, recently, emerging questions related to the COVID-19 pandemic (e.g., Chan and Milne 2014 ; Rumler and Waschiczek 2016 ; Elnahass et al 2020a , b , 2021 ; Trinh et al 2020a ). This literature is generally classified into three categories: one strand focuses on the determinants of financial performance, the second strand investigates the determinants of banks risk, and a few studies investigate factors that affect both bank performance and risk in relation to the adopted governance and internal control mechanisms.…”

“…Prior studies have studied bank stability in line with several determinants such as bank risk (Bitar et al 2018 ; Ding and Sickles 2018 ; Ozili 2019a ), profitability (Shrieves and Dahl 1992 ; Lee and Hsieh 2013 ; Ozili 2019b ), liquidity (Kim and Sohn 2017 ; Ding and Sickles 2018 ; Jiang et al 2020 ), bank ownership (Boateng et al 2015 ; Ozili 2018 ), market share and firm valuations (Jiang et al 2020 ; Elnahass et al 2020a ). The second set of bank stability literature draws more attention to the impact of corporate governance on bank stability and performance (see Elyasiani and Zhang 2015 ; Faleye and Krishnan 2017 ; Kress 2018 ; Abdelsalam et al 2020 ; Elnahass et al 2020b , 2021 ; Trinh et al 2020a ). Finally, other studies show that bank stability can be affected by different macroeconomic factors, i.e., fluctuation in economic cycles (Segoviano and Goodhart 2009 ), real output growth (Jokipii and Monnin 2013 ), unemployment rate (Heffernan and Fu 2008 ) and GDP (Boateng et al 2015 ).…”