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Does the dividend policy signal quality? Investigation on the bank funding costs, and market discipline

Author

Listed:
  • Dung viet Tran

    (Banking University Ho Chi Minh City)

  • Trung duc Nguyen

    (Banking University Ho Chi Minh City)

  • Chi huu Lu

    (Banking University Ho Chi Minh City)

Abstract

Using a large sample of US banks, this study provides consistent evidence on lower funding costs for banks that pay more dividends. This cost-decreasing effect of dividend policy is interestingly more pronounced for large banks and during the late stage of the financial crisis. These findings suggest the bright side of dividend policy as a tool to signal the quality of bank financial health consistent with Tripathy, Wu, and Zheng (2021). We believe our study is of interest to regulators and policymakers who are concerns of strengthening the market discipline and stability in the banking system.

Suggested Citation

  • Dung viet Tran & Trung duc Nguyen & Chi huu Lu, 2021. "Does the dividend policy signal quality? Investigation on the bank funding costs, and market discipline," Economics Bulletin, AccessEcon, vol. 41(3), pages 2029-2040.
    • Handle: RePEc:ebl:ecbull:eb-21-00498
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    References listed on IDEAS

    as
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    5. Tran, Dung Viet & Hassan, M. Kabir & Houston, Reza, 2019. "Activity strategies, information asymmetry, and bank opacity," Economic Modelling, Elsevier, vol. 83(C), pages 160-172.
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    2. Thich Nguyen & Chi Huu Lu, 2024. "Financial intermediation in banks and the key role of intellectual capital: new analysis from an emerging market," Journal of Financial Services Marketing, Palgrave Macmillan, vol. 29(2), pages 508-522, June.

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    More about this item

    Keywords

    Dividends; Funding costs; Banks; Signaling; Market discipline;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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