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Deposit insurance and bank dividend policy

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JFS_PURE_version_2020_04_23.pdf (780.4Kb)
Date
06/2020
Author
Che Johari, Edie Erman
Chronopoulos, Dimitris
Scholtens, Bert
Sobiech, Anna Lucia
Wilson, John O. S.
Keywords
Banking
Dividends
Difference-in-differences
Deposit insurance
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HG Finance
T-NDAS
BDC
R2C
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Abstract
This study investigates whether deposit insurance affects bank payout policy. To overcome identification concerns, we use the US Emergency Economic Stabilization Act of 2008, which increased the maximum limit of deposit insurance coverage, leading to significant changes in the proportion of insured deposits to assets of some banks, while leaving others relatively unaffected. In line with the view that dividends convey information regarding financial health, we find that banks, which experience a substantial increase in insured deposits reduce dividends relative to others with a smaller increase in insured deposits. An extensive battery of further tests confirm that our results are not driven by events (such as capital injections due to participation in the Trouble Asset Relief Program, peer effects, state tax changes, deposit insurance pricing changes) that took place around the time of the increase in the maximum limit of deposit insurance coverage. Overall, the results of our empirical analysis suggest that banks holding fewer uninsured deposits pay less dividends.
Citation
Che Johari , E E , Chronopoulos , D , Scholtens , B , Sobiech , A L & Wilson , J O S 2020 , ' Deposit insurance and bank dividend policy ' , Journal of Financial Stability , vol. 48 , 100745 . https://doi.org/10.1016/j.jfs.2020.100745
Publication
Journal of Financial Stability
Status
Peer reviewed
DOI
https://doi.org/10.1016/j.jfs.2020.100745
ISSN
1572-3089
Type
Journal article
Rights
Copyright © 2020 Elsevier BV. All rights reserved. This work has been made available online in accordance with publisher policies or with permission. Permission for further reuse of this content should be sought from the publisher or the rights holder. This is the author created accepted manuscript following peer review and may differ slightly from the final published version. The final published version of this work is available at https://doi.org/10.1016/j.jfs.2020.100745
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  • University of St Andrews Research
URI
http://hdl.handle.net/10023/24218

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