EU Banks' Dividend Policies: Main Determinants and the Role of Capital Ratios

38 Pages Posted: 30 May 2023

See all articles by Salvatore Cardillo

Salvatore Cardillo

Bank of Italy - Research Department

Jacopo Raponi

Bank of Italy

Date Written: February 6, 2023

Abstract

The aim of this work is to gauge the main determinants of EU banks’ dividend policies, by testing four theoretical assumptions, i.e. signaling, agency conflict (between shareholders and managers and between shareholders and creditors), life-cycle and regulatory pressure, on a sample of 79 banks established in the European Union (including UK) over a 15-year period. Special attention is given to the regulatory pressure theory, as our model investigates the role of both the actual capital level and the surplus above minimum requirements. Results show that the signaling, the regulatory pressure and the shareholders vs. creditors agency conflict theories hold for banks. The life-cycle theory only partially holds. With regard to the regulatory variables, capital surplus appears to have a remarkably higher explanatory power than actual capital level.

Keywords: bank, dividend policy, capital requirements, bank regulation

JEL Classification: G21, G28, G35, K22

Suggested Citation

Cardillo, Salvatore and Raponi, Jacopo, EU Banks' Dividend Policies: Main Determinants and the Role of Capital Ratios (February 6, 2023). Bank of Italy Temi di Discussione (Working Paper) No. 1403, Available at SSRN: https://ssrn.com/abstract=4463951 or http://dx.doi.org/10.2139/ssrn.4463951

Salvatore Cardillo (Contact Author)

Bank of Italy - Research Department ( email )

Via Nazionale 91
00184 Roma
Italy

Jacopo Raponi

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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