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.
Bibliographical noteThis is the peer reviewed version of the following article: Onali, E. (2014). Moral Hazard, Dividends, and Risk in Banks. Journal of business finance and accounting, 41(1-2), 128-155, which has been published in final form at http://dx.doi.org/10.1111/jbfa.12057. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.
- bank risk taking
- moral hazard