EU Banks' Dividend Policies : Main Determinants and the Role of Capital Ratios

The aim of this work is to gauge the main determinants of EU banks’ dividend policies, by testing four theoretical assumptions, i.e. signaling, agency conflict (between shareholders and managers and between shareholders and creditors), life-cycle and regulatory pressure, on a sample of 79 banks established in the European Union (including UK) over a 15-year period. Special attention is given to the regulatory pressure theory, as our model investigates the role of both the actual capital level and the surplus above minimum requirements. Results show that the signaling, the regulatory pressure and the shareholders vs. creditors agency conflict theories hold for banks. The life-cycle theory only partially holds. With regard to the regulatory variables, capital surplus appears to have a remarkably higher explanatory power than actual capital level