This paper is the first investigation of the interplay between dividends and risk taking in banks. I examine the role … of dividends as a risk-shifting mechanism that can exacerbate moral hazard, controlling for standard determinants of … dividends in nonfinancial firms. My main findings show that banks that are close to depleting their capital pay more dividends …

The relation between dividends and bank soundness has recently drawn much attention from both academics and policy … makers. However, the existing literature lacks an investigation of the relation between dividends and bank risk taking. I … default risk and payout ratios. Dividends can increase despite very high default risk, and during the recent financial crisis …

amount of the dividends paid, we find that firms are four times more likely to subsequently require debt restructuring if … they distribute dividends based on unrealized earnings. However, this enhanced risk seems to be mispriced by the market …

results in increased cash holdings, lower dividends and lower equity value prior to investment - contrary to the standard …