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Moral hazard, dividends, and risk in banks

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  • Enrico Onali

    ()
    (Bangor Business School)

Abstract

The relation between dividends and bank soundness has recently drawn much attention from both academics and policy makers. However, the existing literature lacks an investigation of the relation between dividends and bank risk taking. I find a positive relation between default risk and payout ratios, although this relation is insignificant for very high levels of default risk. Capital requirements and the desire to preserve the charter can offset the positive relation between default risk and payout ratios. Dividends can increase despite very high default risk, and during the recent financial crisis many banks paid out dividends after recording a loss.

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File URL: http://www.bangor.ac.uk/business/research/documents/BBSWP12001.pdf
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Bibliographic Info

Paper provided by Bangor Business School, Prifysgol Bangor University (Cymru / Wales) in its series Working Papers with number 12001.

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Date of creation: Jan 2012
Date of revision:
Handle: RePEc:bng:wpaper:12001

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Web page: http://www.bangor.ac.uk/business/research/
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Keywords: dividend; bank risk; moral hazard;

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Cited by:
  1. Hirtle, Beverly, 2014. "Bank holding company dividends and repurchases during the financial crisis," Staff Reports 666, Federal Reserve Bank of New York.

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