Dividends, maturity, and acquisitions: Evidence from a sample of bank IPOs
Post-IPO banks are far more likely to initiate dividends than nonfinancial IPO firms. Moreover, dividend initiation has a significant impact on the ultimate disposition of a newly public bank, increasing its likelihood of subsequent acquisition by around 40% and reducing the expected time until acquisition by 83%. Conditional on being acquired, dividend initiation increases the average takeover premium by about 55% of the market value of the bank in the month prior to the takeover announcement. Dividend initiating banks are also more mature, as indicated by asset growth rates, profitability, risk measures, and corporate governance measures. The initiation of the dividends and the ultimate sale of the firm may be consequences of the same underlying driver--maturity--but the dividend initiation appears to expedite the process by confirming the status of the firm and by drawing attention to the bank's readiness and willingness to be acquired. Dividend initiation thus seems to speed up and amplify the rewards to owners that may be reaped through an ultimate sale of the institution.
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