Bank Dividend Policy as a Signal of Bank Quality

Abstract

This article examines whether the dividendpolicy of bank holding companies is used as a signal of their quality. The study found evidence to support the dividend signaling argument-that is, that there is a positive relationship between bank dividendsper share and bank quality rating. Aaiiitionally, an inverse relationship between the dividend payout ratio and bank quality was found. Therefore, both aspects of a bank holding company’s dividendpolicy yields information about the quality of a fmancial institution.