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Investor protection and dividend policy: The case of Islamic and conventional banks

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  • Athari, Seyed Alireza
  • Adaoglu, Cahit
  • Bektas, Eralp

Abstract

This study examines the dividend policy behavior of Islamic and conventional banks operating in Arab markets. These banks operate in an environment of Sharia law and low levels of investor protection. Our results support the substitution agency model of dividends for Islamic banks, and Islamic banks use the dividend policy as a substitute mechanism for alleviating relatively more significant agency problems and higher risks of expropriation by insiders. In these markets, conventional banks operate in a more competitive environment and experience relatively less significant agency problems. In contrast to Islamic banks, conventional banks follow the outcome agency model of dividends.

Suggested Citation

  • Athari, Seyed Alireza & Adaoglu, Cahit & Bektas, Eralp, 2016. "Investor protection and dividend policy: The case of Islamic and conventional banks," Emerging Markets Review, Elsevier, vol. 27(C), pages 100-117.
    • Handle: RePEc:eee:ememar:v:27:y:2016:i:c:p:100-117
    DOI: 10.1016/j.ememar.2016.04.001
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    More about this item

    Keywords

    Dividend policy; Agency theory; Outcome; Substitute; Islamic banks; Conventional banks;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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