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NBER Working Papers and Publications
|December 2013||Bank Capital and Dividend Externalities|
with Viral V. Acharya, Hyun Song Shin: w19707
In spite of mounting losses banks continued to pay dividends during the crisis. We present a model that addresses this behavior. By paying out dividends, a bank transfers value to its shareholders away from creditors, among whom are other banks. This way, one bank's dividend payout policy affects the equity value and risk of default of other banks. When such negative externalities are strong and bank franchise values are not too low, the private equilibrium can feature excess dividends relative to a coordinated policy that maximizes the combined equity value of banks.
Published: Viral V. Acharya & Hanh T. Le & Hyun Song Shin, 2017. "Bank Capital and Dividend Externalities," Review of Financial Studies, Society for Financial Studies, vol. 30(3), pages 988-1018. citation courtesy of