Payout Policy Through the Financial Crisis: The Growth of Repurchases and the Resilience of Dividends
University of Chicago - Booth School of Business
University of Toronto - Rotman School of Management
Douglas J. Skinner
The University of Chicago - Booth School of Business
September 1, 2014
Chicago Booth Research Paper No. 12-01
We compare the payout policies of US industrials and banks over the past 30 years, including through the financial crisis, to better understand dividends, especially for banks. For industrials, the declining propensity to pay (Fama and French, 2001) largely reverses after 2002 and is accompanied by a strong increase in aggregate dividends. Financials, especially banks, have a higher and more stable propensity to pay dividends. Large banks resist cutting dividends as the crisis begins but then cut dividends aggressively while industrial dividends are largely unaffected. Before the crisis, repurchases increase strongly for both sets of firms, pushing total payouts to historic levels, but are quickly reduced at the onset of the crisis. Collectively, the evidence suggests that banks use dividends to signal financial strength while the agency costs of free cash flow is the dominant explanation for industrial payouts.
Number of Pages in PDF File: 61
Keywords: Dividends, Repurchases.
JEL Classification: G35
Date posted: January 5, 2012 ; Last revised: September 25, 2014
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