Bank dividends, agency costs and shareholder and creditor rights

Lepetit, Lætitia; Meslier, Céline; Strobel, Frank; Wardhana, Leo Indra

doi:10.1016/j.irfa.2017.12.007

Cited by 33 publications

(35 citation statements)

References 81 publications

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“…Thus, a capital distribution may be avoided. This result agrees with Lepetit et al (2018) which established that a company's payout policy is significantly dependent on the degree of agency conflicts between shareholders and debtholders. Further, the optimal payout policy (cost of equity) can serve as a complementary mechanism for the firm in cushioning the effects of the debtholder's stringent actions on the firm, particularly when cooperation is yet to be attained.…”

Section: Cooperative Game Analysis -Pareto Outcomesupporting

confidence: 91%

“…The problem is also significant because a company's payout policy is influenced by the extent of the agency conflicts between its shareholders and debtholder (Lepetit et al 2018). Although agency cost does not consistently increase with the use of debt (Mao 2003), higher tax rates exacerbate the risk-shifting incentives and debt-overhang problem (Wang, H, Xu & Yang 2018).…”

Section: Introductionmentioning

confidence: 99%

“…The third cluster are studies that have evaluated the significance of the asset substitution problem on firm value. This includes via theoretical frameworks Leland (1998) and Ericsson (2000), simulation methods Parrino and Weisbach (1999), managerial surveys Graham and Harvey (2001), empirical research Eisdorfer (2008), optimization Moreno-Bromberg and Rochet (2018), Lepetit et al (2018), etc. The difference between these previous studies and our new study is that the former seeks to establish the impact of the risk-shifting problem on the firm value but does not resolve the problem.…”

Section: Introductionmentioning

confidence: 99%

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Optimal capital structure and the debtholder-manager conflicts of interests: a management decision model

Adeoye

Islam

Adekunle

2020

JM2

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Purpose Determining the optimal capital structure becomes more complicated by the presence of an agency problem. The issuance of debt as a corporate governance mechanism introduces the asset substitution problem – the agency cost of debt. Thus, there is a recognized need for models that can resolve the agency problem between the debtholder and the manager who acts on behalf of the shareholder, leading to optimal capital structure choice, and enhanced firm value. The purpose of this paper is to model the debtholder-manager agency problem as a dynamic game, resolve the conflicts of interests and determine the optimal capital structure. Design/methodology/approach As there is no satisfactory model for dealing with the above issues, this paper uses a differential game framework to analyze the incongruity of interests between the debtholder and the manager as a non-cooperative dynamic game and further resolves the conflicts of interests as a cooperative game via a Pareto-efficient outcome. Findings The optimal capital structure required to minimize the marginal cost of the agency problem is a higher use of debt, lower cost of equity and withheld capital distributions. The debtholder is also able to enforce cooperation from the manager by providing a lower and stable cost of debt and a greater debt facility in the overtime framework. Originality/value The study develops a new dynamic contract theory model based on the integrated issues of capital structure, corporate governance and agency problems and applies the differential game approach to minimize the agency problem between the debtholder and the manager.

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Section: Cooperative Game Analysis -Pareto Outcomesupporting

confidence: 91%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Optimal capital structure and the debtholder-manager conflicts of interests: a management decision model

Adeoye

Islam

Adekunle

2020

JM2

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“…Second, as the literature provides strong empirical evidence that dividend policy follows firms' life cycle (DeAngelo et al, 2006;Von Eije & Megginson, 2008;Fatemi & Bildik, 2012;Brawn & Šević, 2018;Wardhana & Tandelilin, 2018), we use firm age as a proxy for the firm life cycle. A third control added to the model is leverage (LEV), measured as the ratio of total debt to total assets, as creditors might limit the dividend payout in order to protect their interest in a firm (Cao et al, 2017;Lepetit et al, 2018). Fourth, we add ownership variables as abundant empirical studies show that it matters in dividend decisions (Grinstein & Michaely, 2005;Bøhren et al, 2012;Lacave & Urtiaga, 2015;Mulyani et al, 2016).…”

Section: B Methodologymentioning

confidence: 99%

Women in a Dual Board System and Dividend Policy

Risfandy¹,

Radika²,

Wardhana³

2021

BEMP

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We investigate whether firms with the presence of female on its board of commissioners and board of directors are associated with higher dividend policy. This paper uses Indonesian setting as a country with a dual board system implying that the role of board of commissioners and board of directors is explicitly separated. Using panel data on 525 publicly listed firms in Indonesia between 2011 and 2018, we find that the women's presence has different impacts on the dividend policy depending on their role as an executive or non-executive on the board. Female directors are negatively associated with cash dividend payments, while female commissioners positively impact dividend payment in the case of family-controlled firms only. Our results contribute to the literature on board gender diversity by showing different roles and behavior of boards in each tier in the corporate dividend policy, thus providing insights on corporate governance in a two-tiered board system in developing countries.

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“…Using this differential change in insured deposits across banks to overcome identification concerns, we investigate whether there is a causal link from deposit insurance to the payout policies of banks. As such, we make a significant contribution to a small, but important literature on bank dividend policy (Abreu and Gulamhussen, 2013;Kanas, 2013;Kauko, 2014;Floyd et al, 2015;Forti and Schiozer, 2015;Acharya et al, 2017;Lepetit et al, 2018).…”

Section: Introductionmentioning

confidence: 92%

Deposit insurance and bank dividend policy

Johari

Chronopoulos

Scholtens

et al. 2020

Journal of Financial Stability

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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.

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Bank dividends, agency costs and shareholder and creditor rights

Cited by 33 publications

References 81 publications

Optimal capital structure and the debtholder-manager conflicts of interests: a management decision model

Optimal capital structure and the debtholder-manager conflicts of interests: a management decision model

Women in a Dual Board System and Dividend Policy

Deposit insurance and bank dividend policy

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