Download This PaperThe Role of Banks in Dividend Policy
31 Pages Posted: 8 Sep 2009
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The Role of Banks in Dividend Policy
Date Written: August 2009
Abstract
We document a significant inverse relationship between a firm’sdividend payouts and reliance on bank loan financing. Banks limitdividend payouts to shareholders in order to protect the integrity oftheir senior claims on the firm’s assets. Moreover, dividendpayouts decline in the presence of monitoring by relationship banks,which acts as an effective governance mechanism, thereby reducing thegains from pre-committing to costly dividend payouts. Bank monitoringand corporate governance (insider stake and institutional blockholdings) are complementary mechanisms to resolve firm agency problems,both reducing the firm’s reliance on dividend policy.
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Linda Allen
City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance ( email )
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New York, NY 10010
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HOME PAGE: http://stern.nyu.edu/~lallen
Anthony Saunders
New York University - Leonard N. Stern School of Business ( email )
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New York, NY 10012-1126
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