Bank Payout Motives at the Start of the Crisis of 2007-2009
63 Pages Posted: 24 Jun 2015 Last revised: 19 Feb 2021
Date Written: February 10, 2021
We study U.S. banks’ payout policy in 2007-2008. We start by benchmarking bank payouts in 2007 and 2008 against a model of payouts before the crisis. We then investigate stock price reactions to dividend changes and cross-sectional variation in the relation between insider information about banks’ future performance and payout policy to gauge the role of wealth transfer and fear of adverse market reactions underlying payout decisions in both years. While we do not find conclusive evidence of either motive in 2007-2008, our results corroborate concerns that it can be necessary to constrain dividends when a crisis unfolds.
Keywords: dividends, total payout, financial crisis, insider trading
JEL Classification: G21, G24, G28, G32, G35
Suggested Citation: Suggested Citation