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

41 Pages Posted: 5 Jan 2012 Last revised: 24 Nov 2015

Eric Floyd

University of California San Diego

Nan Li

University of Toronto - Rotman School of Management

Douglas J. Skinner

The University of Chicago - Booth School of Business

Date Written: June 1, 2015

Abstract

We compare the payout policies of US industrials and banks over the past 30 years to better understand dividends, especially for banks. For industrials, dividends grow strongly after 2002, when the declining propensity to pay reverses. Banks have a higher and more stable propensity to pay dividends and resist cutting dividends as the 2007-08 financial crisis begins. Before the crisis, increases in repurchases push payouts to historic levels. These findings are broadly consistent with the idea that banks use dividends to signal financial strength, while agency costs of free cash flow better explain industrial payouts.

Keywords: Dividends, Repurchases, Dividend signaling, Banks

JEL Classification: G21, G28, G35

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 (June 1, 2015). Journal of Financial Economics (JFE), Forthcoming; Chicago Booth Research Paper No. 12-01. Available at SSRN: https://ssrn.com/abstract=1979501 or http://dx.doi.org/10.2139/ssrn.1979501

Eric Floyd

University of California San Diego ( email )

CA
United States

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)

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