Why European Banks Adjust Their Dividend Payouts?

33 Pages Posted: 4 Oct 2022

See all articles by Marco Belloni

Marco Belloni

European Central Bank (ECB)

Maciej Grodzicki

European Central Bank (ECB)

Mariusz Jarmuzek

European Central Bank (ECB); International Monetary Fund (IMF)

Multiple version iconThere are 2 versions of this paper

Date Written: September 1, 2022

Abstract

Using a panel data approach for two samples of listed and unlisted European banks, this paper provides evidence that, over a decade and a half preceding the pandemic, bank dividend payouts were adjusted in line with the motivations found in the literature. Banks change their dividend payouts because they would like to signal good profitability to shareholders to address information asymmetry, or use dividends to mitigate the agency costs, or could come under pressure from prudential supervisors and regulators to retain earnings. Banks are found not to discount expectations about future economic conditions or their own profitability when making payouts. Simulations show that, in the absence of supervisory sector-wide recommendations to suspend dividend payouts, banks would likely have reduced the payouts only slightly in the first year of the pandemic.

Keywords: Bank dividend policy, banking regulation and supervision, panel data analysis., bank dividend payout, bank profitability ratio, dividend payout, bank capital ratios, Capital adequacy requirements, Bank soundness, Global financial crisis of 2008-2009, Countercyclical capital buffers, Global

JEL Classification: F31, E26, G21, G35, G01, G28, G18, I12, C23

Suggested Citation

Belloni, Marco and Grodzicki, Maciej and Jarmuzek, Mariusz, Why European Banks Adjust Their Dividend Payouts? (September 1, 2022). IMF Working Paper No. 2022/194, Available at SSRN: https://ssrn.com/abstract=4234383

Marco Belloni (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Maciej Grodzicki

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Mariusz Jarmuzek

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

International Monetary Fund (IMF) ( email )

700 19th Street N.W.
Washington, DC 20431
United States

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