Bank stability and dividend policy

Dung Tran and David McMillan

Cogent Economics & Finance, 2021, vol. 9, issue 1, 1982234

Abstract: Relying on a US bank sample, we document the double-edged sword of dividends on the bank's riskiness. Paying dividends exposes banks to stricter market discipline, then decreases the risk-taking behaviors of bank management compared with non-payers, consistent with the Dividend-Stability Channel. However, among banks that pay dividends, excessive dividends makes them riskier, consistent with the Dividend-Fragility Channel. Our results remain unchanged due to a battery of robustness testings.

Date: 2021
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DOI: 10.1080/23322039.2021.1982234

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