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Dividend Signaling and Bank Payouts in the Great Financial Crisis

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  • Ragnar E. Juelsrud
  • Plamen T. Nenov

Abstract

We study the dividend payouts of U.S. banks during the 2008 financial crisis. Using a difference-in-differences methodology, we shows that banks with higher share of short-term liabilities to total liabilities, which were thus more exposed to the rollover crisis that took place in 2008, increased their dividend payouts relative to less exposed banks. This relative increase in dividend payouts is concentrated in relatively cash-rich banks. The dividend payout increase was associated with a short-run increase in stock valuations. We argue that this front-loading of dividends of more exposed banks is consistent with a theory of dividend payouts, in which the payout policy has a (short-run) stabilizing role on the bank’s liquidity position by signaling information to short-term lenders about the bank’s available liquidity.

Suggested Citation

  • Ragnar E. Juelsrud & Plamen T. Nenov, 2022. "Dividend Signaling and Bank Payouts in the Great Financial Crisis," Working Paper 2022/9, Norges Bank.
    • Handle: RePEc:bno:worpap:2022_9
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    File URL: https://hdl.handle.net/11250/3031785
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    References listed on IDEAS

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    More about this item

    Keywords

    payout policies; dividend signaling; rollover crises; bank runs; liquidity crises;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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