Testing Dividend Life-Cycle Theory in the Islamic and Conventional Banking Sectors of GCC Countries

Ibrahim Yousef, Sailesh Tanna, Sudip Patra

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Abstract

Purpose – This paper aims to present a comparative evaluation of the determinants affecting the likelihood of dividend payouts by Islamic and conventional banks in the Gulf Cooperation Council (GCC) countries.
Design/methodology/approach – The authors used the dynamic panel logit model to test dividend lifecycletheory by analyzing the determinants affecting the likelihood of dividend payouts by GCC banks. Moreover, the authors used multinomial logistic regressions to extend the results where the dependent variable is a nominal variable equal to (1) for non-payment of dividends, (2) for lower dividend payments, and (3) for higher dividend payments.
Findings – The authors report a finding consistent with the life-cycle theory of dividends where a higher proportion of retained-earnings-to-contributionmix implies a greater likelihood of dividend payments, apart from conventional characteristics such as profitability, size and growth. However, the authors find marked differences in the magnitude and significance of the life-cycle characteristics explaining the likelihood of dividend payouts for Islamic and conventional banks. The authors also find that Islamic banks are smaller and less profitable relative to conventional banks but have higher growth rates, which helps to explain why the proportion of dividend non-payments is higher for Islamic banks than for conventional banks. The results also indicate that the higher default rates and business risk associated with GCC banks reduces their propensity to pay dividends.
Practical implications – The topic of dividends remains an important puzzle in the field of modern finance. The findings have significant implications for a variety of stakeholders in both Islamic and conventional banks in GCC countries, including investors, depositors, analysts, managers, regulators and stock exchanges.
Originality/value – This paper aims to contribute to the literature by drawing on life-cycle theory as a basis for comparing the determinants affecting the likelihood of dividend payouts by Islamic and conventional banks in the GCC countries.
Original languageEnglish
Pages (from-to)276-300
Number of pages25
JournalJournal of Islamic Accounting and Business Research
Volume12
Issue number2
Early online date29 Jan 2021
DOIs
Publication statusPublished - 4 Mar 2021

Bibliographical note

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Keywords

  • Dividend policy
  • Emerging markets
  • Islamic banks
  • Life cycle theory

ASJC Scopus subject areas

  • Business and International Management
  • Accounting
  • Strategy and Management

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