Social reporting by islamic banks

The last thirty years have witnessed the appearance and rapid expansion of Islamic banking both inside and outside the Islamic world. Islamic banks provide financial products that do not violate Sharia , the Islamic law of human conduct. The Islamic principles upon which the banks claim to operate give an important role to social issues. Applying these principles, we develop a benchmark set of social disclosures appropriate to Islamic banks. These are then compared, using a disclosure index approach, the actual social disclosures contained in the annual reports of twenty-nine Islamic banks (located in sixteen countries) to this benchmark. In addition, content analysis is undertaken to measure the volume of social disclosures. Our analysis suggests that social reporting by Islamic banks falls significantly short of our expectations. The results of the analysis also suggest that banks required to pay the Islamic religious tax Zakah provide more social disclosures than banks not subject to Zakah .     

In search of a residual dividend policy

We survey 309 sample firms exhibiting behavior consistent with a residual dividend policy and their matched counterparts to learn how they set their dividend policies. The findings reveal that the sample firms are more likely than their counterparts to maintain a long-term dividend payout ratio, use long-run earnings forecasts in setting the dividend, and be unconcerned about the cost of raising external funds. Yet, firms behaving as though they follow a residual dividend policy generally do not profess to follow the policy. At best, the sample firms follow a “modified” residual policy in which they carefully manage their payout ratio and dividend trend. Although it may not be an explicit goal of such a dividend policy, consistently low free cash flow typically results.     

Feedback loops, fair value accounting and correlated investments

This paper presents and tests a model of the price dynamics that arise when investors fail to recognize the redundancy of unrealized gains and losses (“UGLs”) that are correlated with the firm’s past returns. Consistent with the predictions of our model, our experiment shows that a firm’s prices and earnings become highly volatile when correlated investment is large and correlated UGLs are made salient by comprehensive income reporting. The results suggest that including correlated UGLs in performance numbers could induce violations of weak-form efficiency that exacerbate volatility in share prices and earnings.     

Bank CEO materialism: Risk controls,culture and tail risk

We investigate how the prevalence of materialistic bank CEOs has evolved over time, and how risk management policies, non-CEO executives’ behavior and tail risk vary with CEO materialism. We document that the proportion of banks run by materialistic CEOs increased significantly from 1994 to 2004, that the strength of risk management functions is significantly lower for banks with materialistic CEOs, and that non-CEO executives in banks with materialistic CEOs insider trade more aggressively around government intervention during the financial crisis. Finally, we find that banks with materialistic CEOs have significantly more downside tail risk relative to banks with non-materialistic CEOs.     

Rookes v. Barnard and the trade union question in British politics

In the 1950s, given the scope of the Trade Disputes Act 1906 that had granted immunity against specific torts (civil wrongs) to organisers of industrial action, the courts had little role in industrial relations. Hence, the importance of the House of Lords decision in 1964 that, in threatening to strike to secure Douglas Rookes's removal from the Heathrow design office of the British Overseas Aircraft Corporation after his resignation from the union, Alfred Barnard and others had used unlawful means because a threat to break a contract of employment came within the tort of intimidation that was unprotected by the Trade Disputes Act's statutory immunities, and thus, they were liable to pay damages to Rookes. The legal arguments deployed are analysed within growing unease in the Conservative Party and among employers at the emergence of workplace union organisation and national strikes. Despite being partially neutralised by the Trade Disputes Act 1965, Rookes was a harbinger of a new judicial activism that outflanked trade unions' tort immunities by creating novel common law liabilities. This in turn laid the political basis for subsequent Conservative legislation to restrict and regulate trade unions and industrial action, a project that is ongoing.