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Payout Policy Through the Financial Crisis: The Growth of Repurchases and the Resilience of Dividends


Eric Floyd


University of Chicago - Booth School of Business

Nan Li


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

Abstract:     
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

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Date posted: January 5, 2012 ; Last revised: September 25, 2014

Suggested Citation

Floyd, Eric and Li, Nan and Skinner, Douglas J., Payout Policy Through the Financial Crisis: The Growth of Repurchases and the Resilience of Dividends (September 1, 2014). Chicago Booth Research Paper No. 12-01. Available at SSRN: http://ssrn.com/abstract=1979501 or http://dx.doi.org/10.2139/ssrn.1979501

Contact Information

Eric Floyd
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Chicago Booth School of Business Logo

Nan Li
University of Toronto - Rotman School of Management ( email )
105 St. George Street
Toronto, Ontario M5S 3E6
Canada
416-946-3126 (Phone)
Douglas J. Skinner (Contact Author)
The University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7137 (Phone)

Chicago Booth School of Business Logo

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