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- Title
The Impact of Stock Price Crash Risk on Bank Dividend Payouts.
- Authors
Jin, Justin Yiqiang; Liu, Yi
- Abstract
In this study, we examine whether and how banks employ dividend payout policies in response to the risk of stock price crashes. Using a sample of U.S. banks, we find that banks increase their dividend payouts when faced with a higher risk of stock price crashes. In addition, we find that well-capitalized banks tend to pay more dividends when the risk of a stock price crash is elevated. This aligns with the regulatory pressure theory that banks distribute dividends when they have sufficient capital that meets or exceeds the regulatory standards. This is also in line with the signaling theory that dividend payments reflect a bank's confidence in its financial health. Furthermore, we find that financially opaque banks tend to make more dividend payments when they are at a higher risk of stock price crashes. This supports the agency cost theory, suggesting that dividends counterbalance the need to monitor bank managers in less transparent reporting environments.
- Subjects
DIVIDENDS; DIVIDEND policy; BANK service charges; AGENCY costs; BANK employees; AGENCY theory; BANKING industry; CAPITAL requirements
- Publication
Journal of Risk & Financial Management, 2024, Vol 17, Issue 5, p209
- ISSN
1911-8066
- Publication type
Article
- DOI
10.3390/jrfm17050209