Factors of Bank Dividend Policy
The current issue and full text archive of this journal is available at www.emeraldinsight.com/0307-4358.htm
Explanatory factors of bank dividend policy: revisited
John Theis and Amitabh S. Dutta
D. Abbott Turner College of Business, Columbus State University, Columbus, Georgia, USA
Abstract
Purpose – The purpose of this paper is to examine the Dickens et al. model of bank holding company dividend policy. They identified five explanatory factors in a sample of bank holding companies (BHCs). Banking companies typically pay larger dividends and more often than industrial firms. Investors often look at the dividends as being important return variables. Design/methodology/approach – In this study, a sample of 99 firms with 2006 data from governmental reports and Yahoo is used in regression equations to test the relationship of the five identified variables with dividend yields. The analysis is extended to investigate non-linearities between dividend yield and insider ownership. Findings – The paper finds that the original model is robust, but not all variables keep their significance. Insider holdings have a non-linear relationship with dividend yields. Practical implications – The significant factors affecting bank dividend policy help dividend seeking investors find BHCs that return higher dividend yields. Originality/value – This paper reveals a non-linear link between insider holdings and dividend yields among BHCs. Keywords Insider holdings, Dividends, Business policy, Banks, Holding companies Paper type Research paper
Bank dividend policy
501
1. Introduction This study reexamines the factors explaining bank holding company (BHC) dividend policy. In the initial paper, Dickens et al. (2003) identified five factors that helped explain bank dividend policy for a sample of banks in 1998. The first model in this study replicates the Dickens et al. (2003) study to verify whether their findings hold up for a different sample of banks in another period.
Explanatory factors of bank dividend policy: revisited
John Theis and Amitabh S. Dutta
D. Abbott Turner College of Business, Columbus State University, Columbus, Georgia, USA
Abstract
Purpose – The purpose of this paper is to examine the Dickens et al. model of bank holding company dividend policy. They identified five explanatory factors in a sample of bank holding companies (BHCs). Banking companies typically pay larger dividends and more often than industrial firms. Investors often look at the dividends as being important return variables. Design/methodology/approach – In this study, a sample of 99 firms with 2006 data from governmental reports and Yahoo is used in regression equations to test the relationship of the five identified variables with dividend yields. The analysis is extended to investigate non-linearities between dividend yield and insider ownership. Findings – The paper finds that the original model is robust, but not all variables keep their significance. Insider holdings have a non-linear relationship with dividend yields. Practical implications – The significant factors affecting bank dividend policy help dividend seeking investors find BHCs that return higher dividend yields. Originality/value – This paper reveals a non-linear link between insider holdings and dividend yields among BHCs. Keywords Insider holdings, Dividends, Business policy, Banks, Holding companies Paper type Research paper
Bank dividend policy
501
1. Introduction This study reexamines the factors explaining bank holding company (BHC) dividend policy. In the initial paper, Dickens et al. (2003) identified five factors that helped explain bank dividend policy for a sample of banks in 1998. The first model in this study replicates the Dickens et al. (2003) study to verify whether their findings hold up for a different sample of banks in another period.
References: Barclay, M.J., Smith, C.W. Jr and Watts, R.L. (1995), ‘‘The determinants of corporate leverage and dividend policy’’, Journal of Applied Corporate Finance, Vol. 7 No. 4, Winter, pp. 4-19. Bhattacharya, S. (1979), ‘‘Imperfect information, dividend policy, and the ‘Bird-in-the-Hand’ fallacy’’, Bell Journal of Economics, Vol. 10 No. 1, Spring, pp. 259-70. Casey, K.M., Anderson, D.C., Mesak, H.I. and Dickens, R.N. (1999), ‘‘Examining the impact of the 1986 Tax Reform Act on corporate dividend policy: a new methodology’’, The Financial Review, Vol. 34 No. 3, pp. 33-46. Collins, M.C., Blackwell, D.W. and Sinkey, J.F. Jr (1994), ‘‘Financial innovation, investment opportunity and corporate policy choices for large bank holding companies’’, The Financial Review, Vol. 29, pp. 223-47. Collins, M.C., Blackwell, D.W. and Sinkey, J.F. Jr (1995), ‘‘The relationship between corporate compensation policies and investment opportunities: empirical evidence for large bank holding companies’’, Financial Management, Vol. 24, pp. 40-53. Bank dividend policy 507 MF 35,6 508 Dickens, R.N., Casey, K.M. and Newman, J.A. (2003), ‘‘Bank dividend policy: explanatory factors’’, Quarterly Journal of Business and Economics, Vol. 41 Nos. 1-2, pp. 3-13. Dutta, A.S., Collins, M.C. and Wansley, J.W. (2007), ‘‘Managerial ownership and dividend policy in the US banking industry’’, (under review, and a working paper available from the authors). Easterbrook, F.H. (1984), ‘‘Two agency-cost explanations of dividends,’’ American Economic Review, Vol. 74 No. 4, pp. 650-9. Fama, E.F. and Babiak, H. (1968), ‘‘Dividend policy: an empirical analysis’’, Journal of the American Statistical Association, Vol. 63 No. 324, pp. 1132-61. Gorton, G. and Rosen, R. (1995), ‘‘Corporate control, portfolio choice, and the decline of banking’’, The Journal of Finance, pp. 1377-420. Goyal, A. and Welch, I. (2003), ‘‘Predicting the equity premium with dividend ratios’’, Management Science, Vol. 49 No. 5, pp. 639-54. Miller, M. and Rock, K. (1985), ‘‘Dividend policy under asymmetric information’’, The Journal of Finance, Vol. 40 No. 4, pp. 1031-51. Morck, R., Shleifer, A. and Vishny, R. (1988), ‘‘Management ownership and market valuation: an empirical analysis’’, Journal of Financial Economics, Vol. 20 Nos. 1-2, pp. 293-315. Rozeff, M.S. (1982), ‘‘Growth, beta and agency costs as determinants of dividend payout ratios’’, The Journal of Financial Research, Vol. 5 No. 3, pp. 249-59. Wruck, K.H. (1989), ‘‘Equity ownership concentration and firm value: evidence from private equity financings’’, Journal of Financial Economics, Vol. 23 No. 1, pp. 3-28. Corresponding author John Theis can be contacted at: theis_john@colstate.edu To purchase reprints of this article please e-mail: reprints@emeraldinsight.com Or visit our web site for further details: www.emeraldinsight.com/reprints