Market Contestability and Bank Payout Policy

76 Pages Posted: 7 Jun 2019 Last revised: 29 Sep 2020

See all articles by Amedeo De Cesari

Amedeo De Cesari

University of Manchester - Alliance Manchester Business School - Finance & Accounting Group

Dudley Gilder

Nottingham University Business School

Winifred Huang

University of Bath

Enrico Onali

University of Exeter Business School

Date Written: May 9, 2019

Abstract

We analyze the impact of market contestability on the payout policy of banks by exploiting plausibly exogenous changes in interstate geographical restrictions on branch expansion of banks. Leveraging branch-level data on bank deposits, we provide evidence of a negative impact of branching restrictions on payout ratios, which occurs only for banks with a low degree of market power. Our results are valid when we use different proxies for market contestability, and bootstrap simulations suggest that our results are not due to confounding factors. These findings support the view that banks might respond to a change in charter values due to market contestability.

Keywords: dividends, competition, payout policy, share repurchases

JEL Classification: G35

Suggested Citation

De Cesari, Amedeo and Gilder, Dudley and Huang, Winifred and Onali, Enrico, Market Contestability and Bank Payout Policy (May 9, 2019). Available at SSRN: https://ssrn.com/abstract=3385441 or http://dx.doi.org/10.2139/ssrn.3385441

Amedeo De Cesari

University of Manchester - Alliance Manchester Business School - Finance & Accounting Group ( email )

Crawford House
Booth Street East
Manchester, M15 6PB
United Kingdom
+44 (0) 161 2754298 (Phone)

Dudley Gilder

Nottingham University Business School ( email )

Jubilee Campus
Wollaton Road
Nottingham, NG8 1BB
United Kingdom

Winifred Huang

University of Bath ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

HOME PAGE: http://researchportal.bath.ac.uk/en/persons/winifred-huang

Enrico Onali (Contact Author)

University of Exeter Business School ( email )

Exeter
United Kingdom

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