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The risk-shifting value of payout: Evidence from bank enforcement actions

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  • Pugachev, Leonid

Abstract

This paper reexamines whether investors value payout and why. I study abnormal stock returns around regulatory enforcement actions that restrict bank dividends and repurchases. Market reactions are significantly worse for enforced banks that pay out than for those that do not. Withstanding alternative explanations and parallel trend concerns, these results present rare, causal evidence of a value to corporate distribution. The cross-section of abnormal returns suggests that risk-shifting, not agency cost-reduction, drives payout. In my sample of distressed banks, especially around financial crises, the ability to shift risk through payout has value.

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  • Pugachev, Leonid, 2022. "The risk-shifting value of payout: Evidence from bank enforcement actions," Journal of Banking & Finance, Elsevier, vol. 138(C).
    • Handle: RePEc:eee:jbfina:v:138:y:2022:i:c:s0378426619301621
    DOI: 10.1016/j.jbankfin.2019.07.015
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    1. Berrospide, Jose M., 2022. "IFABS 2017: Towards an Integrated View of Financial Regulation: Key Lessons from the Crisis and Future Challenges," Journal of Banking & Finance, Elsevier, vol. 138(C).

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    More about this item

    Keywords

    Payout policy; Risk-shifting; Bank regulation; Enforcement actions;
    All these keywords.

    JEL classification:

    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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