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Moral Hazard, Dividends, and Risk in Banks
Author(s) -
Onali Enrico
Publication year - 2014
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/jbfa.12057
Subject(s) - dividend payout ratio , dividend , business , hazard ratio , monetary economics , dividend yield , capital requirement , dividend policy , capital adequacy ratio , economics , financial system , actuarial science , finance , confidence interval , incentive , mathematics , statistics , microeconomics
In non‐financial firms, higher risk taking results in lower dividend payout ratios. In banking, public guarantees may result in a positive relationship between dividend payout ratios and risk taking. I investigate the interplay between dividend payout ratios and bank risk‐taking allowing for the effect of charter values and capital adequacy regulation. I find a positive relationship between bank risk‐taking and dividend payout ratios. Proximity to the required capital ratio and a high charter value reduce the impact of bank risk‐taking on the dividend payout ratio. My results are robust to different proxies for the dividend payout ratio and bank risk‐taking.