Bank Capital and Dividend Externalities
AbstractIn spite of mounting losses banks continued to pay dividends during the crisis. We present a model that addresses this behavior. By paying out dividends, a bank transfers value to its shareholders away from creditors, among whom are other banks. This way, one bank's dividend payout policy affects the equity value and risk of default of other banks. When such negative externalities are strong and bank franchise values are not too low, the private equilibrium can feature excess dividends relative to a coordinated policy that maximizes the combined equity value of banks.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19707.
Date of creation: Dec 2013
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Other versions of this item:
- Acharya, Viral V & Le, Hanh & Shin, Hyun Song, 2014. "Bank Capital and Dividend Externalities," CEPR Discussion Papers 9865, C.E.P.R. Discussion Papers.
- Acharya, Viral V & Le, Hanh & Shin, Hyun Song, 2013. "Bank Capital and Dividend Externalities," CEPR Discussion Papers 9479, C.E.P.R. Discussion Papers.
- G01 - Financial Economics - - General - - - Financial Crises
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
- G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-12-15 (All new papers)
- NEP-BAN-2013-12-15 (Banking)
- NEP-CBA-2013-12-15 (Central Banking)
- NEP-CFN-2013-12-15 (Corporate Finance)
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