Corporate Governance Mechanisms and Dividend Policy: Does the Shariah Law work as Moderator?

Abstract

Purpose: This study investigates the impact of Corporate Governance
(CG) mechanisms on Dividend Policy (DP) by focusing on the moderating
role of Shar¯ı‘ah compliance.
Design/Methodology/Approach: Data were collected from the Pakistan
Stock Exchange from 2014 to 2018. Panel regression analysis was performed using Eviews and Stata software to analyze the data. Results indicated that Shar¯ı‘ah-compliant firms have higher dividend payouts compared to non-Shar¯ı‘ah-compliant firms. Shar¯ı‘ah compliance
significnalty moderates the relationship among CEO duality, gender diversity, and dividend policy.
Findings: Results indicated that Shar¯ı‘ah-compliant firms have higher
dividend payouts compared to non-Shar¯ı‘ah-compliant firms. Shar¯ı‘ah
compliance significnalty moderates the relationship among CEO duality,
gender diversity, and dividend policy.
Originality/Significance: The study’s uniqueness lies in assessing
Pakistan’s governance alignment with Islamic CG standards, exploring Shar¯ı‘ah compliance’s impact on dividends, and highlighting its
moderating role in CG mechanisms.
Research Limitations/Implications: The study is limited by scarcity of
CG data and potential specificity to Pakistan’s Shar¯ı‘ah-compliant firms.
Exploring broader data from diverse regions and sectors would amplify
implications.
Practical and Social Implications: The findings of this study provide
valuable insights for various stakeholders including policymakers, legislators, companies, and investors. The results can guide the development
of more effective CG rules and practices, facilitating better governance
in both Shar¯ı‘ah-compliant and non-compliant firms. Moreover, this
study’s findings could create a favorable investment climate for Shar¯ı‘ahcompliant firms in Pakistan and other developing sectors, thereby fostering
their growth and development