Review of Corporate Finance > Vol 3 > Issue 3

Payouts and Future Bank Profitability: The Role of Capital Distribution Plans

Dimitris K. Chronopoulos, Centre for Responsible Banking & Finance, St Andrews, UK, dc45@st-andrews.ac.uk , Edie Erman Che Johari, School of Economics, Finance & Banking, Universiti Utara Malaysia, Malaysia, edie@uum.edu.my , Anna L. Sobiech, Centre for Responsible Banking & Finance, St Andrews, UK, and Geographic Institute & Center for Macroeconomic Research, University of Cologne, Germany, als23@st-andrews.ac.uk , John O. S. Wilson, Centre for Responsible Banking & Finance, St Andrews, UK, jsw7@st-andrews.ac.uk
 
Suggested Citation
Dimitris K. Chronopoulos, Edie Erman Che Johari, Anna L. Sobiech and John O. S. Wilson (2023), "Payouts and Future Bank Profitability: The Role of Capital Distribution Plans", Review of Corporate Finance: Vol. 3: No. 3, pp 361-387. http://dx.doi.org/10.1561/114.00000044

Publication Date: 26 Jul 2023
© 2023 D. K. Chronopoulos, E. E. C. Johari, A. L. Sobiech and J. O. S. Wilson
 
Subjects
Financial markets,  Corporate finance
 
Keywords
JEL Codes: G21, G35, G38
Banks, bank regulation, capital, dividends, payouts, profitability, repurchases
 

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In this article:
Introduction 
Hypothesis Development 
Identification, Model Specification, and Data 
Results 
Conclusion 
References 

Abstract

We investigate the impact of a change in the regulatory oversight of bank capital distributions on the information content of payouts (dividends, share repurchases) regarding the future level and volatility of profitability of US Bank Holding Companies (BHCs). Using a differential regulatory treatment, which requires large BHCs to obtain prior regulatory approval before enacting payouts to shareholders, we find that an increase in regulatory oversight of bank capital distributions leads to an increase in the information content of dividends (but not share repurchases) with respect to the level (but not the volatility) of future bank profitability.

DOI:10.1561/114.00000044

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