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Why European Banks Adjust their Dividend Payouts?
Author:
Marco Belloni
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,
Maciej Grodzicki
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, and
Mariusz Jarmuzek
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Series:
IMF Working Papers
Volume/Issue:
Volume 2022: Issue 194
Language:
English
Publication Date:
23 Sep 2022
DOI:
https://doi.org/10.5089/9798400218972.001
ISBN:
9798400218972
ISSN:
1018-5941
Pages:
33
Keywords:
Bank dividend policy; banking regulation and supervision; panel data analysis.; bank dividend payout; bank profitability ratio; dividend payout; bank capital ratios; Capital adequacy requirements; Bank soundness; Global financial crisis of 2008-2009; Countercyclical capital buffers; Global
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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Using a panel data approach for two samples of listed and unlisted European banks, this paper provides evidence that, over a decade and a half preceding the pandemic, bank dividend payouts were adjusted in line with the motivations found in the literature. Banks change their dividend payouts because they would like to signal good profitability to shareholders to address information asymmetry, or use dividends to mitigate the agency costs, or could come under pressure from prudential supervisors and regulators to retain earnings. Banks are found not to discount expectations about future economic conditions or their own profitability when making payouts. Simulations show that, in the absence of supervisory sector-wide recommendations to suspend dividend payouts, banks would likely have reduced the payouts only slightly in the first year of the pandemic.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2022: Issue 194