Impact of the Dividend Distribution Restriction on the Flow of Credit to Non-Financial Corporations in Spain

17 Pages Posted: 9 Apr 2021 Last revised: 29 Apr 2021

See all articles by David Martinez-Miera

David Martinez-Miera

Universidad Carlos III de Madrid - Department of Business Administration; Center for Economic Policy Research

Raquel Vegas Sánchez

Banco de España

Date Written: March 15, 2021

Abstract

This article analyses the impact of Recommendation ECB/2020/19 (to credit institutions to refrain from making dividend distributions and performing share buy-backs aimed at remunerating shareholders) on lending by Spanish banks between January and September 2020. Specifically, we use a sample of Spanish banks and exploit the fact that only some of them (those that had already approved dividend pay-outs before the recommendation) were able to pay dividends during the first few months of the pandemic. This quasi-natural experiment allowed us to analyse the impact of dividend restrictions on lending. Banks that limited their dividend distributions during the period analysed extended significantly more credit (12% to 23% more than banks that did not limit them) to non-financial corporations after the entry into force of the recommendation. At the same time, firms that received loans with public guarantees, such as, for example, loans that benefit from the ICO’s guarantee facilities established in response to the COVID-19 pandemic, received more credit from banks that did not make dividend distributions than from those that did, which suggests that these two measures may complement one another.

Keywords: dividends, credit, COVID-19

JEL Classification: E50, E51, G21, G28, G32, G35, I18

Suggested Citation

Martinez-Miera, David and Vegas Sánchez, Raquel, Impact of the Dividend Distribution Restriction on the Flow of Credit to Non-Financial Corporations in Spain (March 15, 2021). Banco de Espana Article 07/21, Available at SSRN: https://ssrn.com/abstract=3821565

David Martinez-Miera (Contact Author)

Universidad Carlos III de Madrid - Department of Business Administration ( email )

Calle Madrid 126
Getafe, Madrid, Madrid 28903
Spain

Center for Economic Policy Research ( email )

London
United Kingdom

Raquel Vegas Sánchez

Banco de España ( email )

Calle Alcala, 48
Madrid, 28014
Spain

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