Moral Hazard, Dividends, and Risk in Banks

Enrico Onali

Journal of Business Finance & Accounting, 2014, vol. 41, issue 1-2, 128-155

Abstract: In non-financial firms, higher risk taking results in lower dividend payout ratios. In banking, public guarantees may result in a positive relationship between dividend payout ratios and risk taking. I investigate the interplay between dividend payout ratios and bank risk-taking allowing for the effect of charter values and capital adequacy regulation. I find a positive relationship between bank risk-taking and dividend payout ratios. Proximity to the required capital ratio and a high charter value reduce the impact of bank risk-taking on the dividend payout ratio. My results are robust to different proxies for the dividend payout ratio and bank risk-taking.

Date: 2014
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Working Paper: Moral hazard, dividends, and risk in banks (2012)
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