Dirty Surplus Accounting and Dividend Payout in the Banking Industry

Posted: 15 Dec 2014

See all articles by Michele Fabrizi

Michele Fabrizi

University of Padova

Elisabetta Ipino

Concordia University, Quebec - Department of Accountancy

Michel Magnan

Concordia University - Department of Accountancy

Antonio Parbonetti

University of Padua

Date Written: December 15, 2014

Abstract

This paper investigates whether the fair value accounting for available-for-sale (AfS) securities and the capital regulation permit to shift risk from shareholders to creditors. Using a sample of 5,510 firm-year observations generated from 754 unique U.S. banks from 1998 to 2013, we find that banks realize gains on available-for-sale securities to distribute resources to shareholders in the form of dividends, while keeping loss-making assets in the balance sheet. Banks experiencing a decline in earnings or regulatory capital appear to rely on realized gains to pay dividends to a larger extent than banks that do not show a decline in earnings or regulatory capital. Our findings indicate that to counterbalance the increased risk banks change their lending behavior.

Keywords: Banks, dividend, available-for-sale securities, regulatory capital

JEL Classification: M41, G21

Suggested Citation

Fabrizi, Michele and Ipino, Elisabetta and Magnan, Michel and Parbonetti, Antonio, Dirty Surplus Accounting and Dividend Payout in the Banking Industry (December 15, 2014). 2015 Canadian Academic Accounting Association (CAAA) Annual Conference, Available at SSRN: https://ssrn.com/abstract=2538322 or http://dx.doi.org/10.2139/ssrn.2538322

Michele Fabrizi

University of Padova ( email )

Via del Santo, 33
Padova, Padova 35123
Italy

Elisabetta Ipino (Contact Author)

Concordia University, Quebec - Department of Accountancy ( email )

Montreal, Quebec H3G 1M8
Canada

Michel Magnan

Concordia University - Department of Accountancy ( email )

Montreal, Quebec H3G 1M8
Canada

Antonio Parbonetti

University of Padua ( email )

Via del Santo 33
Padova, 35123
Italy
+39 049 8274261 (Phone)

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