Search results

1 – 4 of 4
Article
Publication date: 11 October 2021

Akram Ramadan Budagaga

The purpose of this paper is to test the validity of irrelevant theory empirically by exploring the relationship between cash dividends, profitability, leverage and investment…

Abstract

Purpose

The purpose of this paper is to test the validity of irrelevant theory empirically by exploring the relationship between cash dividends, profitability, leverage and investment policy with the value of banking institutions in the Middle East and North Africa (MENA) markets.

Design/methodology/approach

The paper adopts Ohlson’s (1995) valuation model. The author estimates models by using static panel (random and fixed effects) techniques and the dynamic technique, namely, the GMM estimation. The empirical study covers a sample of 122 conventional and 37 Islamic banks listed on stock markets in 12 MENA countries over the period 1999–2018.

Findings

The empirical results show that dividend yield has no significant association with the value of conventional banks, whereas profitability, growth opportunity and leverage have a significant positive impact on the value of conventional banks. In contrast, the results for a sample of Islamic banks indicate that the dividend yield, profitability and leverage have a significant positive effect on the value of Islamic banks, whereas growth opportunity has no significant effect on the value of Islamic banks. Therefore, these results support, to a greater extent, the validity of the dividend irrelevance theory of Modigliani and Miller for conventional banks but would not be accepted for Islamic banks in the MENA region.

Research limitations/implications

This study is restricted to a sample of one type of financial firms, banking firms listed in the MENA countries. In addition, the study has dealt with one type of dividend (the cash dividend).

Practical implications

Highlighting the difference between conventional and Islamic banks is crucial to understanding dividend policy behavior and to providing investors information to be integrated in their valuation setting to make informed corporate decisions.

Originality/value

To the best of the author’s knowledge, the present study is the first of its kind that it draws a comparative analysis by testing empirically the validity of the Irrelevant Theory to banks in the MENA region covering a long time period in the recent past.

Details

Journal of Financial Economic Policy, vol. 14 no. 4
Type: Research Article
ISSN: 1757-6385

Keywords

Open Access
Article
Publication date: 4 August 2020

Akram Ramadan Budagaga

This study will examine the impact of cash dividends on the market value of banks listed in Middle East and North African (MENA) emerging countries during the period 2000–2015.

4928

Abstract

Purpose

This study will examine the impact of cash dividends on the market value of banks listed in Middle East and North African (MENA) emerging countries during the period 2000–2015.

Design/methodology/approach

The current study adopts residual income approach based on Ohlson's (1995) valuation model. By testing different statistical techniques, fixed effect is applied on panel data for (144) banks listed on 11 MENA stock markets over the period 2000–2015. Furthermore, additional tests are applied to confirm the primary results.

Findings

The analysis reveals that current dividend payouts and dividend yield do not provide information relevant to the establishment of market values in MENA emerging markets; thus, they have no material impact on MENA banks' market values. This lack of current dividend payment effect is consistent with Miller and Modigliani (1961) dividend irrelevance assumption: there is no evidence of either an informational or real cash inflow effect of current dividend payments. The findings of this study can be attributed to the fact that MENA banks may be forced to place more emphasis on allocating money for investment instead of paying dividends given them they are subject to liquidity requirements for investment, expansion, general operations and compliance with regulations. Only after all these financial needs are covered can the remaining surplus be distributed as cash dividends. Therefore, cash dividends represent earnings residual rather than an active decision variable that impacts a firm's market value. This is consistent with the residual dividend hypothesis, which is the crux of Miller and Modigliani (1996) irrelevance theory of dividends.

Research limitations/implications

The current study is restricted to a sample of one type of financial firms, banks, because of the problem of missing data and limited information related to other financial firms for the same period. Therefore, further research could be additional types of financial firms such as insurance firms that play a vital role in MENA emerging economies.

Practical implications

The results of this study have some important implications for banks' dividend policymakers. Dividend policymakers in MENA emerging markets seem to follow residual dividend policy, in which they distribute dividends according to what is left over after all acceptable investment opportunities have been undertaken. This makes for inconsistent and unstable dividend policy trends, making it difficult for investors to predict future dividend decisions. Further, this practice may deliver information to shareholders about a lack of positive future investment opportunities, and this may negatively affect the share value of banks.

Originality/value

This study is the first of its kind – up to the author's knowledge – that examines a large cross-country sample of MENA banks (144) to cover a long time period in the recent past, and, more importantly, after the banking sector in the region has experienced major transformations during last two decades. In addition, most of the MENA region countries included in this study, namely, banks, operate in tax-free environments (there are neither taxes on dividends nor on capital gains). This feature adds complexity to the ongoing dividend debate.

Details

Journal of Capital Markets Studies, vol. 4 no. 1
Type: Research Article
ISSN: 2514-4774

Keywords

Article
Publication date: 15 July 2020

Akram Ramadan Budagaga

This paper aims to investigate bank-specific determinants affecting the dividend policy of commercial banks listed in the Middle East and North Africa (MENA) region countries.

1227

Abstract

Purpose

This paper aims to investigate bank-specific determinants affecting the dividend policy of commercial banks listed in the Middle East and North Africa (MENA) region countries.

Design/methodology/approach

The study uses pooled and panel tobit and logit regression analyses based on 16-year unbalanced data with 1,593 firm-year observations collecting from 117 commercial banks listed in 11 MENA countries.

Findings

The results indicated that the main bank-specific factors affecting dividend payment decisions are bank size, profitability, capital adequacy, credit risk and bank age in the context of the MENA emerging markets. In addition, the analysis showed that the yearly dummy for the global financial crisis (2008–2009) has a significant negative effect, while the yearly dummy for the Arabic spring crisis (2010–2011) has no significant effect on the dividend payment decision of banks listed in the MENA region. Furthermore, the growth opportunity is not one of the key factors affecting dividend policies by banks in MENA emerging markets. Considering this information, it is reasonable to conclude that MENA region banks’ dividend decisions follow investment decisions. In other words, the dividend decisions and investment decisions are independent of each other. The findings support theories (hypotheses) of dividends such as residual, signalling, regulatory pressures, transaction cost and lifecycle.

Research limitations/implications

This study is restricted to a sample of one type of financial firm, conventional commercial banks listed in the MENA markets because of the problem of missing data and limited information on other financial firms for the same period, particularly Islamic banks. Moreover, the focus of this study was on factors that are considered bank fundamentals. However, ownership variables were not included in the study because of unavailability.

Practical implications

The results of this study have several important implications for banks’ dividend policymakers, regulators, analysts and investors. Dividend policymakers in MENA emerging markets seem to use residual dividend policy, in which they distribute dividends according to what is left over after all acceptable investment opportunities have been undertaken. These inconsistent, unstable dividend policy trends make it difficult for investors to predict future dividend decisions. Further, this practise may convey information to shareholders about a lack of positive future investment opportunities. This may negatively affect the share value of banks. Acquiring a broad understanding of the dividend behaviour of MENA banks enables regulators to take more effective regulatory actions to protect shareholders and depositors. Finally, the results of this study can help analysts and investors build their dividends predictions and investment strategies.

Originality/value

The banking sector plays a disproportionately large role in the development of emerging economies. Therefore, this study is one of the first to examine a large cross-country sample of MENA banks (117) for an extensive period (2000–2015). The study includes both the Global financial crisis and Arab uprising periods, including after the liberalization and recent economic reforms and structural changes in financial sectors across MENA countries.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 13 no. 5
Type: Research Article
ISSN: 1753-8394

Keywords

Open Access
Article
Publication date: 13 July 2020

Guler Aras

263

Abstract

Details

Journal of Capital Markets Studies, vol. 4 no. 1
Type: Research Article
ISSN: 2514-4774

1 – 4 of 4