The Interplay between Dividends and Leverage inside Commercial Banks
Forthcoming in the "International Journal of Financial Research," Vol. 8, No. 2
MODUL University Working Paper No. 4
47 Pages Posted: 31 Oct 2013 Last revised: 22 Feb 2017
Date Written: January 2, 2017
Abstract
The paper analyzes the dividends paid by a large sample of commercial banks in the United States during 2006-2011. The most interesting findings arise after the end of 2008. Our measures for the probability of paying dividends and for the dividend payout ratio are positively related to the banks´ non-deposit leverage. Conversely, banks´ dividends correlate negatively to deposit leverage. We argue that during the crisis of 2007-2009 the liquidity needs of banks resorted more to deposits, than to non-deposit debt. This, in turn, had an impact on banks´ dividend policies, to the extent that firms which could raise deposits preferred to preserve their financial stability, and did not pay huge dividends.
Keywords: Banks, Dividends, Leverage
JEL Classification: G21, G35
Suggested Citation: Suggested Citation