Factors of Bank Dividend Policy

The dividend policy has grown over the years. This may be so that the company projects itself as a less risky share and thus also gaining investors faith. The investors buy its shares and thus increase its demand. This helps to gives positive signals to the investors signalling that the company is stable and can generate earnings steadily. This hypothesis is gains standing from the dividend hypothesis theory.

There are three internal and one external governance mechanisms used for owners to govern managers to ensure they comply with their responsibility to satisfy stakeholders and shareholder’s needs. First, ownership concentration is stated as the number of large-block shareholders and the total percentage of the shares they own (Hitt, Ireland, Hoskisson, 2017, p. 317). Second, the board of directors which are elected by the shareholders. Their primary duty is to act in the owner’s best interest and to monitor and control the businesses top-level managers (Hitt, Ireland, Hoskisson, 2017, p. 319). Third, is the

When a company decides to pay dividends, it has to be careful on how much it will be given to the shareholders. It is of no use to pay shareholders dividends

George C. Philippatos and William W. Sihler, 'Models of Dividend Policy', Financial Management (Allyn and Bacon), 228-229

The capital structure of a company changes the risks exposure highlighting the need to determine the impact of debt levels on financial risk (Pearson Learning, 2014). The dividend payout is the ratio of dividends per share to the earnings per share, and both ratios increased for the three years. The increase in the DPS rose at a decreasing rate resulting in slower growth in the dividend payout. The dividend per share is dependent on the total number of dividends paid out in an interim year, and the increase in the DPS was in line with the management’s efforts to reward the investors as the earnings improved. The dividend yield representing the dividend paid out relative to the share price, and the lower divided yield in December 2014 can be attributed to the higher share price hovering over $40, which was more than double the share price in the previous

Guay (1999) documents a positive relationship between firm size and CEO risk-taking incentives. I measure firm size as the total sales at the end of the year. Previous empirical studies show that growth opportunities are also expected to be positively related to CEO risk-taking incentives (Guay, 1999; Rajgopal and Shevlin, 2002; Coles et al., 2006). Consistent with earlier compensation studies, the market-to-book value of assets is used as a proxy for growth opportunities. In contrast, leverage is expected to be negatively associated with the risk-taking incentives (Rogers, 2002). Financial leverage increases the probability of financial distress increase and, therefore, there is lesser need to provide the CEO with a risk-taking incentive. I utilize the debt ration (book value of debt to book value of assets) as a proxy for leverage (Rogers, 2002).

The payments of interest are a fixed liability of the company so the financial manager have to decide what profit is left over for the company (Pujari, S 2015). The surplus profit is distributed to equity shareholders as dividend or it is kept aside as retained earnings. Financial managers have to decide how much to distributed as dividend and how much is needed to keep aside as retained earnings. They take in consideration the growth plans and investment opportunities (Pujari, S 2015). There are also affecting factors for dividend decision which the financial manager needs to analyze the factors before dividing the net earnings between dividend and retained earnings. Earnings is an affecting factor because dividends are paid out of the current and previous year’s earning (Pujari, S 2015). When a company experiences more earnings than the company has a high rate of dividends whereas if the experience low earnings than the dividends are low as well. Stability of earnings is another affecting factor because when a company has stable earnings they will give a higher rate of dividends, but if a company has lower earnings the dividends will be lower as well (Pujari, S 2015). Dividend decisions also has cash flow position factors where companies will declare a high rate of dividends only when the company has surplus funds. In cases where the company has a cash shortage they will also have low dividends (Pujari, S

Some argue that increasing dividend payments increases a firm’s value. Another view claims that high dividend payouts have the opposite effect on a firm’s value; that is, it reduces firm value. The third theoretical approach asserts that dividends should be irrelevant and all effort spent on the dividend decision is wasted. These views are embodied in three theories of dividend policy: high dividends increase share value theory (or the so-called ‘bird-in-the- hand’ argument), low dividends increase share value theory (the tax-preference argument), and the dividend irrelevance hypothesis. Dividend debate is not limited to these three

In practice, dividend policy will be affected by taxes as tax rates for different categories of investors will differ. Also, a firm’s dividend policy is perceived by the financial markets to be a signaling mechanism. A cut back in dividends may signify that the firm perceives tough

The fact that shareholders are taxed twice through this repayment methodology infers that dividends are not their repayment technique of choice. Furthermore, paying out cash reserves through dividends also has the effect of both reducing the company’s assets and also inhibited the company’s ability to fund future growth as Dividends reduce the company’s retained earnings.

In general the three-stage approach allows us to add complexity to the standard dividend discount models by enabling changing growth scenarios throughout the forecasting period: an initial period of higher than normal growth, a transition/consolidation period of declining growth and final a period of stable growth. The main assumptions are that the company on which we conduct the calculation study currently is in extraordinary strong growth phase. The time period with the extraordinary strong growth must be strictly defined and eventually be replaced with the declining growth assumption. Lastly, Capital Expenditures and Depreciation are expected to grow at the same rate as revenues. .

A dividend is a usually distributed in cash form to stock holders of a corporation approved by the board of director. It may also include stock dividend or other forms of payment. A stock dividend represents a distribution of additional shares to common stockholders. Dividends are only cash payments regularly made by corporations to their stockholders.

This journal article is authored by Po-Hin Ho of National Taipei University; Chia-wei Huang and CHih-Yung Lin, associate professor of finance at Yuan Ze University; and Ju-Fang Yen of the department of statistics at national Taipei University. The article was published recently in the journal of financial Economics, put forward a new perspective which managerial overconfidence could explain the substantial heterogeneity in bank risk-taking behaviour during a boom and performance in the subsequent crisis in these banks.

In early developmental stage of economy FI’s are more influential in exerting corporate governance as compared to the markets (Levine, 2002). Firms mostly rely on internal funding sources but prefer to seek banks for capital financing rather than markets and therefore banks gain an advantage to exert corporate governance over borrowers (Gorton and Winton, 2002).

Kumar (1988) builds a model that explains dividend smoothing - one of the most salient features of dividend policy. Dividends once again signal a firm’s quality (productivity), but, since they are over invested in the firm, managers will try to under invest by underreporting a firms productivity. While there is no fully revealing equilibrium, Kumar shows that firms will tend to cluster around optimal dividend levels. Agency theory suggests that dividends can be used as a means to control a firm’s management. Distributing dividends reduces the free cash