Bank Payout Motives at the Start of the Crisis of 2007-2009

Bank Payout Motives at the Start of the Crisis of 2007-2009

Peter Cziraki, Christian Laux, Gyongyi Loranth

Series number :

Serial Number: 
480/2016

Date posted :

July 09 2019

Last revised :

February 22 2021
SSRN Share

Keywords

  • dividends • 
  • total payout • 
  • financial crisis • 
  • insider trading

We study U.S. banks’ payout policy in 2007-2008. We start by benchmarking bank payouts in 2007 and 2008 against a model of payouts before the crisis.

We then investigate stock price reactions to dividend changes and cross-sectional variation in the relation between insider information about banks’ future performance and payout policy to gauge the role of wealth transfer and fear of adverse market reactions underlying payout decisions in both years. While we do not find conclusive evidence of either motive in 2007-2008, our results corroborate concerns that it can be necessary to constrain dividends when a crisis unfolds.

Authors

Real name:
Peter Cziraki
Real name:
Gyongyi Loranth