Managerial ownership, dividend and debt policy in the US banking industry

Article Abstract:

Keywords: Accounting research, Banking, Stock ownership, Dividends, Debt, USA This study examines a sample of 136 US bank holding companies (BHCs) to determine the relation between insider holdings, dividend and debt policy. While these three variables have been examined as alternative signals of firm quality - prior research has generally excluded regulated firms from such analysis. It has been assumed that regulators, through their oversight duties, perform the job of informing the market about firm quality. Thus these variables should have no significant relation with each other. For the sample examined, there is no significant relation between insider holdings and debt - which confirms prior expectations. However, contrary to expectations, a strong negative relation is found between insider holdings and dividends. This finding could arise due to several factors. One is that insider holdings serve as a substitute signal for dividends in signaling firm quality. Alternately, BHCs with higher levels of insider holdings are consciously choosing a lower level of dividends to avoid the impact of double taxation. It is also possible that higher levels of insider holdings may be driving BHCs to allocate cashflow to other purposes rather than dividend payout.

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Dividend policy issues in regulated and unregulated firms: a managerial perspective

Article Abstract:

Keywords: Accounting research, Dividends, Policy, Top management, USA This study compares the views of 170 senior managers of regulated (utilities) and unregulated (manufacturing) US corporations listed on the New York Stock Exchange about several dividend policy issues. Specifically, the study examines respondents' views about four explanations for paying dividends and 20 factors influencing dividend policy. The results suggest that all four explanations for paying dividends (signaling, bird-in-the-hand, tax preference, and agency costs) receive some support, but the signaling explanation received more support than the other explanations. The evidence also suggests that the most important determinants of a company's dividend policy were the level of current and expected future earnings and the pattern or continuity of past dividends. These factors have remained remarkably similar over time. Finally, regulated and unregulated companies rank factors influencing dividend policy more similarly today than in the past. This finding may reflect the changing economic environment for utilities.

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Further evidence on the relation between corporate ownership structure and debt policy

Article Abstract:

A nonlinear relationship between insider holdings and leverage have provided proof of the positive association of corporate ownership with financial leverage. Using a cross-sectional regression approach, it was established that leverage increases with insider holdings and then decreases and increases again as inside ownership reaches 100%. This nonlinear relationship can be due to the likelihood that agency costs of debt decrease faster than agency costs of equity as insider holding decreases.

Financial Management, Debt & Capital Management, Analysis, Debt financing (Corporations), Debt financing, Leverage (Finance), Leverage

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