Regulatory hypothesis and bank dividend payouts: Empirical evidence from Italian banking sector

Journal article


Ashraf, B., Arshad, S., Rahman, M.M., Kamal, M.A. and Khan, K. (2015). Regulatory hypothesis and bank dividend payouts: Empirical evidence from Italian banking sector. Journal of Financial Engineering. 2 (1). https://doi.org/10.1142/S2345768615500099
AuthorsAshraf, B., Arshad, S., Rahman, M.M., Kamal, M.A. and Khan, K.
Abstract

This study examines the regulatory hypothesis for bank dividend payouts using a panel dataset of 229 Italian banks over the period 2005–2012. Regulatory hypothesis suggests that undercapitalized banks face more regulatory pressure for increasing capital levels by paying lower amount of dividends. Empirical results support the regulatory hypothesis by finding that the Italian banks having lower equity to total assets ratios or lower regulatory capital ratios retain more profits and pay lower amount of dividends. Results also suggest that dividend payer banks try to maintain dividends at previous level by not skipping or reducing dividends. Results further support that Fama and French (2001)'s three characteristics of dividend payers are also applicable to banks. That is, big-in-size, more profitable and low growth Italian banks pay higher amount of dividends. Findings of this study have important implications for recent regulatory proposals that suggest a direct regulation of dividends. A direct regulation of dividends, on one hand, and regulatory pressure on dividend payout decisions through capital requirements, on the other hand, may have unintended consequences for dividends as signaling and agency cost reducing tools.

Year2015
JournalJournal of Financial Engineering
Journal citation2 (1)
PublisherWorld Science Publishers
ISSN2382-5596
Digital Object Identifier (DOI)https://doi.org/10.1142/S2345768615500099
Web address (URL)http://dx.doi.org/10.1142/s2345768615500099
Publication dates
Online01 Mar 2015
Publication process dates
Accepted26 Jan 2015
Deposited11 Nov 2022
Accepted author manuscript
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File Access Level
Open
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