CEO Power, Government Monitoring, and Bank Dividends

40 Pages Posted: 14 Dec 2015 Last revised: 17 Dec 2015

See all articles by Enrico Onali

Enrico Onali

University of Exeter Business School

Ramilya Galiakhmetova

University of Bologna - Department of Management

Philip Molyneux

University of Sharjah; University of Sharjah - College of Business Administration

Giuseppe Torluccio

University of Bologna - Department of Management; Università degli studi di Modena e Reggio Emilia (UNIMORE) - Center for Research in Banking and Finance (CEFIN)

Date Written: August 20, 2015

Abstract

We investigate the role of CEO power and government monitoring on bank dividend policy for a sample of 109 European listed banks for the period 2005-2013. We employ three main proxies for CEO power: CEO ownership, CEO tenure, and unforced CEO turnover. We show that CEO power has a negative impact on dividend payout ratios and on performance, suggesting that entrenched CEOs do not have the incentive to increase payout ratios to discourage monitoring from minority shareholders. Stronger internal monitoring by board of directors, as proxied by larger ownership stakes of the board members, increases performance but decreases payout ratios. These findings are contrary to those from the entrenchment literature for non-financial firms. Government ownership and the presence of a government official on the board of directors of the bank, also reduces payout ratios, in line with the view that government is incentivized to favor the interest of bank creditors before the interest of minority shareholders. These results show that government regulators are mainly concerned about bank safety and this allows powerful CEOs to distribute low payouts at the expense of minority shareholders.

Keywords: CEO power, dividends, entrenchment, government monitoring, banks

JEL Classification: G21, G35

Suggested Citation

Onali, Enrico and Galiakhmetova, Ramilya and Molyneux, Philip and Molyneux, Philip and Torluccio, Giuseppe, CEO Power, Government Monitoring, and Bank Dividends (August 20, 2015). Journal of Financial Intermediation, doi:10.1016/j.jfi.2015.08.001, Forthcoming , Available at SSRN: https://ssrn.com/abstract=2702805

Enrico Onali (Contact Author)

University of Exeter Business School ( email )

Exeter
United Kingdom

Ramilya Galiakhmetova

University of Bologna - Department of Management ( email )

via Capo di Luca 34
Bologna, 40126
Italy
+39 051 2098085 (Phone)

HOME PAGE: http://www.sa.unibo.it/SA/default.htm

Philip Molyneux

University of Sharjah ( email )

College of Business Administration
University of Sharjah
Sharjah, Sharjah
United Arab Emirates

HOME PAGE: http://www.sharjah.ac.ae/en/academics/Colleges/business/Pages/ppl_detail.aspx?mcid=1

University of Sharjah - College of Business Administration ( email )

University City Road
Sharjah, 27272
United Arab Emirates

Giuseppe Torluccio

University of Bologna - Department of Management ( email )

via Capo di Lucca 34
40126 Bologna
Italy
+39 051 2098085 (Phone)

HOME PAGE: http://WWW.SA.UNIBO.IT

Università degli studi di Modena e Reggio Emilia (UNIMORE) - Center for Research in Banking and Finance (CEFIN) ( email )

via Berengario 51
Modena, modena I-41100
Italy

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