Bank Capital and Dividend Externalities

Viral Acharya, Hanh Le and Hyun Song Shin

No 19707, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In 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.

JEL-codes: G01 G21 G24 G28 G32 G35 G38 (search for similar items in EconPapers)
Date: 2013-12
New Economics Papers: this item is included in nep-ban, nep-cba and nep-cfn
Note: CF
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

Published as Viral V. Acharya & Hanh T. Le & Hyun Song Shin, 2017. "Bank Capital and Dividend Externalities," Review of Financial Studies, Society for Financial Studies, vol. 30(3), pages 988-1018.

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Related works:
Journal Article: Bank Capital and Dividend Externalities (2017)
Working Paper: Bank capital and dividend externalities (2016)
Working Paper: Bank Capital and Dividend Externalities (2014)
Working Paper: Bank Capital and Dividend Externalities (2013)
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