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Dividend policy and bank opacity

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  • Dung Viet Tran
  • Badar Nadeem Ashraf

Abstract

Does dividend policy increase or decrease bank opaqueness? Under the Dividend–Transparency Channel, paying dividends involves banks having greater discipline from the markets due to external financing and reduces private benefits of control, leading to lower earnings management concerns. Under the Dividend–Opacity Channel, due to a hesitancy to change dividend policy, banks have high vocations to engage earnings management to circumvent payout policy restrictions in debt covenants or to keep their dividend target unchanged. Employing a large sample of 2,483 U.S. bank holding companies from 2001:Q1–2013:Q4, the study documents the double†edged sword of dividends on the discretionary behaviours of banks. Paying dividends makes banks less opaque to compare with nonpayers, which is consistent with the Dividend–Transparency Channel, however among dividend paying banks, excessive dividends involve banks to manage more their numbers, which is consistent with the Dividend–Opacity Channel. The findings are robust under different specifications. The results are of important interest to bank regulators.

Suggested Citation

  • Dung Viet Tran & Badar Nadeem Ashraf, 2018. "Dividend policy and bank opacity," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 23(2), pages 186-204, April.
    • Handle: RePEc:wly:ijfiec:v:23:y:2018:i:2:p:186-204
    DOI: 10.1002/ijfe.1611
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    Cited by:

    1. Dung Viet Tran & David McMillan, 2020. "Funding liquidity and bank lending," Cogent Economics & Finance, Taylor & Francis Journals, vol. 8(1), pages 1734324-173, January.
    2. Tran, Dung Viet & Hassan, M. Kabir & AlTalafha, Sarah H. & Turunen-Red, Arja, 2021. "Policy uncertainty, the use of derivatives: Evidence from U.S. bank holdingcompanies (BHCs)," Research in International Business and Finance, Elsevier, vol. 58(C).
    3. 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.
    4. 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.
    5. Van dan Dang, 2022. "Financial reporting and bank development: Evidence from Vietnam," Economics Bulletin, AccessEcon, vol. 42(3), pages 1688-1705.
    6. Sanzid A. Haq & Dung Viet Tran & M. Kabir Hassan, 2019. "Discretionary Loan Loss Provision Behaviour and Banks' Liquidity Creation," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 15(2), pages 119-154.
    7. Dung Viet Tran, 2020. "Economic policy uncertainty and bank dividend policy," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 67(3), pages 339-361, September.
    8. David Blanco‐Alcántara & Jorge Gallud‐Cano & Félix J. López‐Iturriaga & Óscar López‐de‐Foronda, 2022. "Have European banks maintained their payout policy during the crisis? The role of scrip dividends," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(4), pages 4619-4632, October.
    9. Zhang, Yuyang & Uchida, Konari & Dong, Liping, 2020. "External financing and earnings management: Evidence from international data," Research in International Business and Finance, Elsevier, vol. 54(C).
    10. 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).
    11. Tran, Dung Viet & Hassan, M. Kabir & Alam, Ahmed W. & Pezzo, Luca & Abdul-Majid, Mariani, 2021. "Economic policy uncertainty, agency problem, and funding structure: Evidence from U.S. banking industry," Research in International Business and Finance, Elsevier, vol. 58(C).
    12. Tran, Dung Viet & Hussain, Nazim & Nguyen, Duc Khuong & Nguyen, Trung Duc, 2024. "How do depositors respond to banks' discretionary behaviors? Evidence from market discipline, deposit insurance, and scale effects," International Review of Financial Analysis, Elsevier, vol. 93(C).
    13. Phu Quang Tran & Anh Phan & Dung V. Tran & Mohamad H. Shahrour, 2024. "The effect of capital empowerment on the lending competence of banks: Evidence from segmental analysis," Economics Bulletin, AccessEcon, vol. 44(2), pages 731-746.
    14. Tran, Dung Viet & Houston, Reza, 2021. "The effects of policy uncertainty on bank loan loss provisions," Economic Modelling, Elsevier, vol. 102(C).

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