Bank Holding Company Dividend Policy: Changed by Recession?

Abstract

This study examines seven basic theories of dividend policies in bank holding companies during the worst recession since The Great Depression. Data is obtained from Uniform Bank Performance Reports for 2008 where large losses were reported for the US banks. Previous studies found that the management of the companies believe that dividend policy is important created by the present value of future dividends, or the capital gains associated with the future dividends. Dickens et al used Barclay et al model and studied the factors that may have an impact on dividend policies of publicly traded bank holding companies. Their results indicate investment opportunity, size, expected earnings, inside ownership and previous dividend are significant factors in bank holding companies dividend policies. The model used in this paper includes investment opportunities, regulation, agency affects, dividend smoothing, earnings risk, and residual earnings and found that there is a difference between dividend policies of bank holding companies during deep recession and good economy. Furthermore, factors such as investment opportunity, dividend history, size, residual earnings and insider ownership have significant affect on dividend policies of bank holding companies.

Keywords: Dividend policy, Bank Holding Company dividend policy, BHC

JEL Classification: G21