Evaluating the impact of dividend restrictions on euro area bank market values

Arbeitspapier

This paper evaluates the impact of the March 2020 European Central Bank recommendation that banks do not pay dividends or buy back shares on their market values. It documents a causal negative impact on bank share prices of around 7% during the two weeks following its announcement. The recommendation affected the market values of banks directly, by delaying investor cash flows and indirectly, by increasing the uncertainty about future distributions and thus banks' equity risk premia. The impact differed across banks depending on their distribution plans and risk-adjusted profitability. Our analysis highlights the importance of managing perceptions about dividend uncertainty through credible communication about the expected duration, frequency and severity of dividend restrictions to limit their unintended side effects.

Object Details

• ISBN: 978-92-899-5983-4
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 2787

Classification and Topics

• Classification: Wirtschaft ; Asset Pricing; Trading Volume; Bond Interest Rates ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Financial Institutions and Services: Government Policy and Regulation ; Payout Policy
• Subject: bank dividends ; banking supervision ; bank capital ; COVID-19 pandemic ; bank cost of equity

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Andreeva, Desislava ; Bochmann, Paul ; Schneider, Julius
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2023

Further information

• DOI: doi:10.2866/535788
• Handle: http://hdl.handle.net/10419/278363
• Last update: 10.03.2025, 11:44 AM CET