The risk-shifting value of payout: Evidence from bank enforcement actions

Leonid Pugachev

Journal of Banking & Finance, 2022, vol. 138, issue C

Abstract: This paper reexamines whether investors value payout and why. I study abnormal stock returns around regulatory enforcement actions that restrict bank dividends and repurchases. Market reactions are significantly worse for enforced banks that pay out than for those that do not. Withstanding alternative explanations and parallel trend concerns, these results present rare, causal evidence of a value to corporate distribution. The cross-section of abnormal returns suggests that risk-shifting, not agency cost-reduction, drives payout. In my sample of distressed banks, especially around financial crises, the ability to shift risk through payout has value.

Keywords: Payout policy; Risk-shifting; Bank regulation; Enforcement actions (search for similar items in EconPapers)
JEL-codes: G21 G28 G35 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:138:y:2022:i:c:s0378426619301621

DOI: 10.1016/j.jbankfin.2019.07.015

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