Differential market valuations of board busyness across alternative banking models

Marwa Elnahass, Kamil Omoteso , Aly Salama, Vu Quang Trinh

Research output: Contribution to journalArticle

Abstract

This study comparatively assesses the influence of board busyness (i.e., multiple directorships of outside directors) on stock market valuations of both Islamic and conventional banks. For a sample of listed banks from 11 countries for the period 2010-2015, results show that board busyness is differentially priced by investors depending on the bank type. In conventional banks, board busyness is significantly and positively valued by the stock market. This result suggests that investors perceive some reputational benefits arising from a busy board (e.g., extended industry knowledge, established external networks or facilitation of external market sources). In contrast, we find no supporting evidence on the market valuations of board busyness in Islamic banks. This result might be attributed to, both, the complex governance structure and
the uniqueness of the business model which require additional effective monitoring, relative to that employed in conventional banking. Our results also show that investors provide significantly low market valuations for busy Shari’ah advisory board which acts as an additional layer of governance in Islamic banks. Findings in this study offer important policy implications to international banking studies and regulations governing countries with dual-banking systems.
Original languageEnglish
Number of pages38
JournalReview of Quantitative Finance and Accounting
Early online date3 Sep 2019
DOIs
Publication statusE-pub ahead of print - 3 Sep 2019

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Banking
Market valuation
Investors
Islamic financial institutions
Stock market valuation
Multiple directorships
Policy implications
Uniqueness
Outside directors
Stock market
Business model
Facilitation
Monitoring
Industry
International banking
Governance
Governance structure
Banking system

Cite this

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title = "Differential market valuations of board busyness across alternative banking models",
abstract = "This study comparatively assesses the influence of board busyness (i.e., multiple directorships of outside directors) on stock market valuations of both Islamic and conventional banks. For a sample of listed banks from 11 countries for the period 2010-2015, results show that board busyness is differentially priced by investors depending on the bank type. In conventional banks, board busyness is significantly and positively valued by the stock market. This result suggests that investors perceive some reputational benefits arising from a busy board (e.g., extended industry knowledge, established external networks or facilitation of external market sources). In contrast, we find no supporting evidence on the market valuations of board busyness in Islamic banks. This result might be attributed to, both, the complex governance structure andthe uniqueness of the business model which require additional effective monitoring, relative to that employed in conventional banking. Our results also show that investors provide significantly low market valuations for busy Shari’ah advisory board which acts as an additional layer of governance in Islamic banks. Findings in this study offer important policy implications to international banking studies and regulations governing countries with dual-banking systems.",
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Differential market valuations of board busyness across alternative banking models. / Elnahass, Marwa; Omoteso , Kamil; Salama, Aly; Trinh, Vu Quang.

In: Review of Quantitative Finance and Accounting, 03.09.2019.

Research output: Contribution to journalArticle

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