Moral hazard, dividends, and risk in banks
AbstractThe 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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Bibliographic InfoPaper provided by Bangor Business School, Prifysgol Bangor University (Cymru / Wales) in its series Working Papers with number 12001.
Date of creation: Jan 2012
Date of revision:
dividend; bank risk; moral hazard;
Find related papers by JEL classification:
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-09-16 (All new papers)
- NEP-BAN-2012-09-16 (Banking)
- NEP-CFN-2012-09-16 (Corporate Finance)
- NEP-CTA-2012-09-16 (Contract Theory & Applications)
- NEP-RMG-2012-09-16 (Risk Management)
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- Hirtle, Beverly, 2014. "Bank holding company dividends and repurchases during the financial crisis," Staff Reports, Federal Reserve Bank of New York 666, Federal Reserve Bank of New York.
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