XXV Edition

1-2 December 2016"

Rational Dividend Persistence in Banking

d'Udekem Benoit, Free University of Bruxelles

Bank dividend policies are very persistent. In a crisis, they exacerbate systemic risk and raise concerns among regulators. However, bankers may keep dividends elevated to uphold a reputation among investors wary of agency conflicts. When raising equity becomes likelier, bankers may be unwilling to alter dividend policies to preserve this reputation. We test these hypotheses using 7,722 bank–quarter observations that span the 2007–2009 financial crisis. Our results suggest that persistence of bank dividend policies increases with agency conflicts and decreases in the presence of concentrated shareholders. When stress is acute, the influence of concentrated shareholders reverses.

Area: Banking

Keywords: banks; agency costs; dividends; share repurchases; risk-weighted assets

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