Assessing the dividend life-cycle theory in Islamic and conventional banks in Indonesia

Purpose This study aims to investigate the dividend payment decisions of Islamic and conventional banks in Indonesia through the lens of dividend life-cycle theory. Design/methodology/approach The sample comprised 15 Islamic banks (IBs) and 42 conventional banks (CBs), covering the period from 2005 to 2024. The analysis used logit and tobit panel regression models to estimate the determinants of dividend payments. Findings The results demonstrate that the dividend policies of both IBs and CBs in Indonesia align with the life-cycle theory. IBs with a higher ratio of retained earnings to total assets (RE/TA) and greater age exhibit a higher likelihood of paying dividends and tend to have higher payout ratios. Similarly, CBs with higher ratios of retained earnings to total equity (RE/TE), higher RE/TA and greater age are more likely to pay dividends and distribute larger payouts. The findings suggest that IBs place greater emphasis on RE/TA than RE/TE, reflecting a more conservative approach to dividend distribution. Research limitations/implications This study focuses exclusively on Indonesian IBs and CBs, emphasizing characteristics consistent with dividend life-cycle theory. It addresses a gap in the literature on bank dividend policies, particularly for IBs, and provides practical insights for practitioners and policymakers involved in dividend decision-making in this sector. Originality/value To the best of the authors’ knowledge, this is among the first studies to analyze the dividend payout ratios of Islamic (Sharia) banks within the framework of dividend life-cycle theory, incorporating RE/TE, RE/TA and bank age as key variables.