Dividend policy: the case of Shariah-compliant firms

Capital structure serves as an important device for mitigation of agency conflicts and, although firms combine debt and cash dividends to address the agency conflicts, debt is preferred as a bonding device by many managers due to its lower cost as compared to equity (John, Knyazeva & Knyazeva, 2015). However, shariah-compliant firms (SCF) cannot use this device due to prohibition of interest-bearing loans in Islam. In this scenario, the dividend payout policy becomes a highly important tool of corporate governance for shariah-compliant investors. Moreover, the managers of these firms cannot maintain stable dividends by issuing bonds and, therefore, the dividend policy of such firms would be different. This chapter highlights the dividend payout behaviour of SCF by comparing them to conventional firms.

Keywords

Dividend policy , Divident payout behaviour , Shariah-compliant firms , Corporate governance

Citation

Anwer, Z., Ramadili Mohd, S. M., Mohd Rasid, M. E. S., Hassan, M. K., & Paltrinieri, A. (2019). Dividend policy: the case of Shariah-compliant firms. In M. K. Hassan, M. Rashid & S. Aliyu (Eds.), Islamic corporate finance (pp. 147-170). London: Taylor & Francis.

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