The Role of Banks in Dividend Policy

Linda Allen · Aron A. Gottesman · Anthony Saunders · Yi Tang

30 citations0/0 files storedFinancial Management

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Corporate Finance and Governance Banking stability, regulation, efficiency Corporate Taxation and Avoidance

Abstract

We use loan‐specific data to document a significant inverse relation between a firm's dividend payouts and the intensity of a firm's reliance on bank loan financing. Banks limit dividend payouts to protect the integrity of their senior claims on the firm's assets. Moreover, dividend payouts decline in the presence of monitoring by relationship banks, which acts as an effective governance mechanism, thereby reducing the gains from precommitting to costly dividend payouts. Bank monitoring and corporate governance (insider stake and institutional block holdings) are complementary mechanisms to resolve firm agency problems, both reducing the firm's reliance on dividend policy.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1978Specification Tests in Econometrics 1986Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers 1996Agency costs of free cash flow, corporate finance, and takeovers 1988Management ownership and market valuation 1990Additional evidence on equity ownership and corporate value 1985Dividend Policy under Asymmetric Information 1956DISTRIBUTION OF INCOMES OF CORPORATIONS AMONG DIVIDENDS, RETAINED EARNINGS AND TAXES

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2019Bank health and cash holdings: Evidence from a bank-centered financial market 2022Impact of corporate governance on dividend policy: A systematic literature review of last two decades 2015Responsibility in The Corporate Governance Framework and Financial Decision Making Process

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