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

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