Bank payout policy, regulation, and politics

60 Pages Posted: 24 Jul 2024

See all articles by Rüdiger Fahlenbrach

Rüdiger Fahlenbrach

École Polytechnique Fédérale de Lausanne; Swiss Finance Institute; European Corporate Governance Institute (ECGI)

Minsu Ko

Monash University

René M. Stulz

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: July 24, 2024

Abstract

Bank payout policy is strongly affected by regulation and politics, especially for the largest banks. Banks, but not industrial firms, have consistently lower payouts in times of high regulation uncertainty and under democratic presidents. After the Global Financial Crisis, bank regulators' influence on payout policies of the largest banks increases sharply and repurchases become more important than dividends for these banks. Repurchases respond more to regulatory climate changes than dividends. The stock-price reaction of the largest banks to the election of Donald Trump is larger than for small banks or industrial firms, and their repurchases increase sharply afterwards.

Keywords: Financial institutions, payout policy, dividends, repurchases, regulation, political influence

JEL Classification: G21, G28, G35

Suggested Citation

Fahlenbrach, Rüdiger and Ko, Minsu and Stulz, Rene M., Bank payout policy, regulation, and politics (July 24, 2024). Fisher College of Business Working Paper No. 2024-03-011 and Charles A. Dice Center Working Paper No. 2024-11, European Corporate Governance Institute – Finance Working Paper No. 1003/2024, Available at SSRN: https://ssrn.com/abstract=4904415 or http://dx.doi.org/10.2139/ssrn.4904415

Rüdiger Fahlenbrach (Contact Author)

École Polytechnique Fédérale de Lausanne ( email )

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Minsu Ko

Monash University ( email )

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Rene M. Stulz

Ohio State University (OSU) - Department of Finance ( email )

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