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Dividend Payouts and Rollover Crises

Author

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  • Ragnar E Juelsrud
  • Plamen T Nenov
  • Itay Goldstein

Abstract

We study dividend payouts when banks face coordination-based rollover crises. Banks in the model can use dividends to both risk shift and signal their available liquidity to short-term lenders, thus, influencing the lenders’ actions. In the unique equilibrium both channels induce banks to pay higher dividends than in the absence of a rollover crisis. In our model banks exert an informational externality on other banks via the inferences and actions of lenders. Optimal dividend regulation that corrects this externality and promote financial stability includes a binding cap on dividends. We also discuss testable implications of our theory.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online

Suggested Citation

  • Ragnar E Juelsrud & Plamen T Nenov & Itay Goldstein, 2020. "Dividend Payouts and Rollover Crises," The Review of Financial Studies, Society for Financial Studies, vol. 33(9), pages 4139-4185.
    • Handle: RePEc:oup:rfinst:v:33:y:2020:i:9:p:4139-4185.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhz130
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    Cited by:

    1. Levent Güntay & Stefan Jacewitz & Jonathan Pogach, 2024. "A Prudential Paradox: The Signal in (Not) Restricting Bank Dividends," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 56(2-3), pages 537-568, March.
    2. Ragnar E. Juelsrud & Plamen T. Nenov, 2022. "Dividend Signaling and Bank Payouts in the Great Financial Crisis," Working Paper 2022/9, Norges Bank.
    3. Ed-Dafali, Slimane & Patel, Ritesh & Iqbal, Najaf, 2023. "A bibliometric review of dividend policy literature," Research in International Business and Finance, Elsevier, vol. 65(C).
    4. Iwaki, Hiromichi & Saito, Junyu, 2022. "Does rollover risk matter to payout policies? Evidence from Japanese listed firms," Journal of Economics and Business, Elsevier, vol. 120(C).
    5. Juelsrud, Ragnar E., 2021. "Deposit concentration at financial intermediaries," Economics Letters, Elsevier, vol. 199(C).

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