A tool for scrutinizing bank bailouts based on multi-period peer benchmarking
AbstractIn the wake of the recent global financial crisis central banks and regulators are concerned about redirection of bailout funds into dividends. Yet, we do not know much about the extent banks follow dividend policies and funding decisions optimal to generating shareholders? wealth because banks have been mostly absent from an otherwise expansive literature on dividend policy. A relative, multi-period analysis of the troubled Japanese regional banks for the period 1998-2007 identifies inefficiencies in the levels of dividends, retained earnings, external funding and share performance. The study unfolds further by investigating associations between inefficiencies and non-performing loans, followed by a comparison of efficient versus inefficient banks across good and bad economic times. The methodology captures linkages among yearly financial decisions over multiple periods, thus summarizing long-term performance. The new approach can guide continuous benchmarking of bank financial performance, as well as help policy-makers monitoring potential misappropriation of bailout funds during financial crises. The findings indicate a potential to adjust levels of debt and equity funding, and substantial room for improvement in share performance. Associations between non-performing loans and technical inefficiencies are generally statistically significant.
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Bibliographic InfoPaper provided by School of Economics, University of Queensland, Australia in its series CEPA Working Papers Series with number WP132010.
Date of creation: Dec 2010
Date of revision:
Find related papers by JEL classification:
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-12-23 (All new papers)
- NEP-BAN-2010-12-23 (Banking)
- NEP-EFF-2010-12-23 (Efficiency & Productivity)
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