Dividend Signaling Hypothesis and Short-Term Asset Concentration of Islamic Interest-Free Banking

30 Pages Posted: 17 Apr 2018

See all articles by M. Kabir Hassan

M. Kabir Hassan

University of New Orleans - College of Business Administration - Department of Economics and Finance

Joseph B. Farhat

Central Connecticut State University - Department of Finance

Bashir Al-Zu'bi

University of Jordan

Date Written: September 1, 2003

Abstract

This paper finds that the dividend signaling hypothesis is able to explain the phenomenon of asset concentration in short- and medium-term investments in the Islamic interest-free banking system. To maintain a stable dividend payout, managers of Islamic banks will prefer to invest in instruments with more certain returns. This leads to concentration in short and medium term mark-up based investments. Our results show that dividends in Islamic banks are stable. Bank earnings are a major source of this stability. We also find that short- and mediumterm investments are more important in generating earnings than long-term investments.

Suggested Citation

Hassan, M. Kabir and Farhat, Joseph and Al-Zu'bi, Bashir, Dividend Signaling Hypothesis and Short-Term Asset Concentration of Islamic Interest-Free Banking (September 1, 2003). Islamic Economic Studies, Vol. 11, No. 1, 2003, Available at SSRN: https://ssrn.com/abstract=3164217

M. Kabir Hassan (Contact Author)

University of New Orleans - College of Business Administration - Department of Economics and Finance ( email )

2000 Lakeshore Drive
New Orleans, LA 70148
United States

Joseph Farhat

Central Connecticut State University - Department of Finance ( email )

1615 Stanley Street
New Britian, CT 06050
United States

Bashir Al-Zu'bi

University of Jordan ( email )

Jordan
Amman, Amman 11942
Jordan

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