Understanding Bank Payouts During the Crisis of 2007-2009

55 Pages Posted: 24 Jun 2015 Last revised: 11 Apr 2019

See all articles by Peter Cziraki

Peter Cziraki

University of Toronto - Department of Economics; Tilburg Law and Economics Center (TILEC)

Christian Laux

Vienna University of Economics and Business; Vienna Graduate School of Finance (VGSF); European Corporate Governance Institute (ECGI)

Gyongyi Loranth

University of Vienna; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: March 20, 2019

Abstract

"We provide an extensive analysis of the payout policy of U.S. banks during the crisis to examine potential risk-shifting and signaling motives of banks. We estimate an empirical model of bank payouts to assess the extent to which changes in payouts are commensurate with worsening fundamentals. Controlling for fundamentals, bank dividends appear excessive in 2007, but not in 2008. Announcements of dividend cuts are not associated with a significant negative price reaction neither before the crisis nor in 2007-2008. Dividend changes in 2007 do not predict performance in 2008, however, banks that reduce dividends in 2008 perform worse in 2009. For banks where insider net purchases are higher in 2006 and 2007, we find a weakly significant negative association between dividend changes in 2007 and performance in 2008. Overall, we do not find clear evidence of either risk-shifting or signaling at the beginning of the crisis. "

Keywords: dividends, total payout, financial crisis, insider trading

JEL Classification: G21, G24, G28, G32, G35

Suggested Citation

Cziraki, Peter and Laux, Christian and Loranth, Gyongyi, Understanding Bank Payouts During the Crisis of 2007-2009 (March 20, 2019). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 480/2016; TILEC Discussion Paper No. 2016-019. Available at SSRN: https://ssrn.com/abstract=2621772 or http://dx.doi.org/10.2139/ssrn.2621772

Peter Cziraki (Contact Author)

University of Toronto - Department of Economics ( email )

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HOME PAGE: http://www.economics.utoronto.ca/petercziraki

Tilburg Law and Economics Center (TILEC) ( email )

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Tilburg, 5000 LE
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Christian Laux

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

Vienna Graduate School of Finance (VGSF) ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Gyongyi Loranth

University of Vienna ( email )

Vienna

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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