The link between bank monitoring and corporate dividend policy: The case of dividend omissions |
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| Affiliation: | 1. National University of Malaysia, Kuala Lumpur, Malaysia;2. Department of Finance, BA-302, Sam M. Walton College of Business Administration, University of Arkansas, Fayetteville, AR 72701, USA;1. Faculty of Business and Economics, The University of Hong Kong, Hong Kong;2. School of Economics and Management, Harbin Institute of Technology, Shenzhen, PR China;1. School of Finance, Shanghai University of Finance and Economics, China;2. Faculty of Business and Economics, University of Hong Kong, China;3. Carlson School of Management, University of Minnesota and SAIF, Shanghai Jiao Tong University, China |
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| Abstract: | This study investigates whether bank monitoring influences investor response to a borrowing firm's decision to omit its dividend payments. We establish a new link between the theories of banking and dividend policy in an examination of how bank monitoring and firm dividend signals complement one another to resolve information asymmetries. Results indicate that, for small firms, investors interpret the dividend decision as a function of bank monitoring and the dividend signals taken together. Also reported are the results of tests examining the differences between the monitoring effects of banks versus public and private non-bank lenders. |
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