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Please use this identifier to cite or link to this item: http://hdl.handle.net/2451/28289

Title: The Role of Banks in Dividend Policy
Authors: Saunders, Anthony
Allen, Linda
Gottesman, Aron
Tang, Yi
Issue Date: 3-Sep-2009
Series/Report no.: FIN-09-005
Abstract: We document a significant inverse relationship between a firm’s dividend payouts and reliance on bank loan financing. Banks limit dividend payouts to shareholders in order to protect the integrity of their senior claims on the firm’s assets. Moreover, dividend payouts decline in the presence of monitoring by relationship banks, which acts as an effective governance mechanism, thereby reducing the gains from pre-committing to costly dividend payouts. Bank monitoring and corporate governance (insider stake and institutional block holdings) are complementary mechanisms to resolve firm agency problems, both reducing the firm’s reliance on dividend policy.
URI: http://hdl.handle.net/2451/28289
Appears in Collections:Finance Working Papers

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