Bank payout policy : evidence from three regulatory changes

• Main Author: Che Johari, Edie Erman
• Format: Dissertation
• Language: English
• Published: University of St Andrews 2020
• DOI: 10.17630/10023-19546

This thesis examines contemporary issues in bank payout policy. The thesis comprises three empirical studies, which investigate how different forms of regulation in the banking industry impact payout decisions. Chapter 2 examines the effect of deposit insurance coverage on bank payout policy. We find that banks most affected by the change in deposit insurance coverage pay lower dividends than less affected counterparts. This suggests that when deposit insurance coverage increases, the need for banks to signal their strength to uninsured depositors declines. Chapter 3 investigates the effect of deregulation and competition on bank payout policy. Using an exogenous measure of competition that captures regulatory induced changes to competition, we find that banks operating in states where extensive deregulation led to intensified competition pay lower dividends than counterparts operating in states where deregulation took place more slowly. Our findings are more pronounced for banks with lower expected future earnings. This suggests that competition reduces the ability of lower performing banks to continue paying dividends. We also find that regulatory scrutiny moderates the strength of the relationship between competition and bank dividends such that banks operating in states characterised by higher competition and lower regulatory scrutiny pay higher dividends than counterparts operating in similarly competitive states, but with greater regulatory scrutiny. Chapter 4 studies how a change in the supervision of bank capital distributions affects the information content of dividends regarding the future level and the volatility of bank profitability. Employing a 2012 change in Regulation Y that requires US banks with assets exceeding $50 billion to submit detailed capital plans for regulatory approval prior to any dividend payouts, we find that the increased supervision of capital distributions (following amendments to Regulation Y) improves the information content of dividends regarding the future level and volatility of bank profitability.