Dividend Payout Policy of the Islamic and Conventional Banks in the Gulf Cooperation Council (GCC) Countries

Abstract

Purpose: The aim of this empirical research is to examine the dividend payout of the Islamic and conventional banks in the Gulf Cooperation Council.

Design/Methodology/Approach: This empirical research employs a quantitative research approach by using descriptive analysis, group statistics, independent sample test, correlation analysis and panel regression on 23 listed Islamic and 37 listed conventional banks in the GCC region during the period 2011-2022.

Findings: The results showed that conventional banks have a greater mean dividend per share and dividend payout ratio. In addition, the bank size has a positive coefficient and a significance value of 0.001 for conventional banks and 0.449 for Islamic banks, which contributes to solving the problem of free cash flow. Banks with large size of assets pay consistent dividend. The coefficient for return on assets (ROA) is positive and statistically significant for both conventional and Islamic banks. This indicates that as ROA increases, the dividend payout ratio also increases, Islamic banks have historically had a higher price of common equity, and their average earnings per share are not significantly different from those of conventional banks.

Conclusion: The findings of the study provide some insights into the variations in dividend policy between conventional banks and Islamic banks, whereby conventional banks have a higher dividend per share, while Islamic banks showed better financial stability in the historic share price.

Practical implication: The findings of this empirical research have significant implications for investors in the banking sector, analysts and policymakers in the Islamic and conventional banks. The empirical findings help investors and analysts to provide effective investment strategies and dividend predictions. In addition, policymakers in Islamic and conventional banks rely on the reaming net profit and bank size to distribute dividend; this will help investors to predict future decisions of dividend.

Contribution to the literature: The banking sector, whether Islamic or conventional banks, plays a vital role in the emerging economy development. Consequently, this is one of the first empirical studies to investigate the dividend policy of Islamic and conventional banks in the GCC region over the period 2011-2022, using listed banks in the region.