Do Banks' Dividends Signal Their Financial Health? (open access)

Do Banks' Dividends Signal Their Financial Health?

This paper examines the relation between banks' dividends and their future financial health. Using banks' Nonperforming Loans Ratio, Loan Loss Provision Ratio, and Z-score as proxies for their financial health, I show that there is a strong positive relation between banks' dividends lagged by one quarter and their financial health in the current quarter. This main finding continues to hold following several additional tests, including the application of an instrumental variable approach, the use of change in dividends as the key independent variable, the exclusion of banks that are subject to stress test, the addition of macroeconomic variables, the exclusion of too-big-to-fail banks, and the exclusion of non-depository banks. I also find that the positive relation between banks' dividends and their future financial health is more pronounced for banks with a higher degree of opacity, a lower Tier 1 capital ratio, and during the 2007-2009 financial crisis. This paper contributes to three strands of the finance literature, including the Risk Reduction Hypothesis of dividend signaling in corporate finance, bank dividend policies, and the determinants of banks' financial stability. First, I show that there is a positive relation between banks' dividends lagged by one quarter and their financial health in the …
Date: August 2018
Creator: Zheng, Yi
System: The UNT Digital Library
An Investigation of the Value of Bank Capital in the Context of Mergers and Acquisitions in the Banking Industry (open access)

An Investigation of the Value of Bank Capital in the Context of Mergers and Acquisitions in the Banking Industry

I analyzed a sample of 228 U.S. bank acquisitions announced from January 1996 to December 2015. This dissertation explores whether acquiring banks pay more for targets with a higher capital ratio using a better measure of goodwill than previous studies. Specifically, this study uses manually collected goodwill to evaluate the value of bank capital, a measure that I argue is superior to those used in prior studies. I collect information about goodwill for 203 merger and acquisition (M&A) deals. I find a positive relation between the target's capital ratio and the goodwill paid for targets, which is consistent with previous cross sectional analysis on the relation between bank equity capital and value. This positive relation exists in the deals with a bank target, but not when the target is a savings institution. Furthermore, I find that the positive association between the target's capital ratio and goodwill paid by the acquirer only exists in the sample of acquisitions of banks announced before the 2007 financial crisis. This dissertation also evaluates the value of bank capital by analyzing the changes in shareholders' wealth around the announcement of M&As. My empirical analysis shows that banking mergers create value for the shareholder of targets. …
Date: August 2018
Creator: Liu, Shiang
System: The UNT Digital Library