Bank Holding Company Dividend Policies and Share Prices

Bank Holding Company Dividend Policies and Share Prices This paper analyzes the relationship between dividend policy and the rate of return on bank holding company (BHC) stocks. We hypothesize that the representative investor in BHC shares has a preference for dividend income over prospective capital gains return. Regulatory policy is hypothesized as playing a role in the determination of the substitutability between dividends and capital gains. To test our hypothesis, two different specifications of the SML were established for the years 1971‐80. Our cross‐sectional sample included forty‐four large BHCs. In general, the statistical evidence provides support for the supposition that investors in BHC stock do not consider expected dividend return and capital gain return as perfect substitutes. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Journal of Business Emerald Publishing

Bank Holding Company Dividend Policies and Share Prices

American Journal of Business, Volume 3 (1): 5 – Apr 22, 1988

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Publisher
Emerald Publishing
Copyright
Copyright © 1988 MCB UP Ltd. All rights reserved.
ISSN
1935-5181
DOI
10.1108/19355181198800005
Publisher site
See Article on Publisher Site

Abstract

This paper analyzes the relationship between dividend policy and the rate of return on bank holding company (BHC) stocks. We hypothesize that the representative investor in BHC shares has a preference for dividend income over prospective capital gains return. Regulatory policy is hypothesized as playing a role in the determination of the substitutability between dividends and capital gains. To test our hypothesis, two different specifications of the SML were established for the years 1971‐80. Our cross‐sectional sample included forty‐four large BHCs. In general, the statistical evidence provides support for the supposition that investors in BHC stock do not consider expected dividend return and capital gain return as perfect substitutes.

Journal

American Journal of BusinessEmerald Publishing

Published: Apr 22, 1988

Keywords: Dividend policies; Share prices; BHC stock; BHC managers

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