Differential market valuations of board busyness across alternative banking models

Journal article


Elnahas, Marwa, Omoteso, Kamil, Salama, Aly and Trinh, Vu Quang 2019. Differential market valuations of board busyness across alternative banking models. Review of Quantitative Finance and Accounting. https://doi.org/10.1007/s11156-019-00841-4
AuthorsElnahas, Marwa, Omoteso, Kamil, Salama, Aly and Trinh, Vu Quang
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.

Keywordsfirm valuations; board busyness; banking systems; stock market
Year2019
JournalReview of Quantitative Finance and Accounting
PublisherSpringer
ISSN0924865X
15737179
Digital Object Identifier (DOI)https://doi.org/10.1007/s11156-019-00841-4
Web address (URL)http://hdl.handle.net/10545/624151
hdl:10545/624151
Publication dates03 Sep 2019
Publication process dates
Deposited13 Sep 2019, 11:36
Accepted28 Aug 2019
ContributorsNewcastle University and University of Derby
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