Organization Capital in Banks and their Dividend Policy

This seminar has been organised by the Accounting and Finance research group.

About the speaker

Our speaker is Dr Shams Pathan, Senior Lecturer in Accounting and Finance.

View Dr Shams Pathan's profile

Research title

"Organization Capital in Banks and their Dividend Policy"

Abstract

Banks persistently pay dividends even at times of crisis, which has drawn attention from various stakeholders including the public, policymakers, regulators, governments, mass media, and academics. To better understand why banks pay dividends, we examine whether and how organization capital—an intangible asset reflecting a stock of knowledge, capabilities, culture, business processes, and systems that integrate both human skills and physical capital to improve organizational efficiency—affects their dividend policy.

We argue a negative association between organization capital and dividends because organizational capital increases managerial capability, disclosure quality, and reduces financial constraints. Accordingly, we find solid evidence that banks with greater organization capital pay 3.55%–4.50% less in dividends, corresponding to a value of $218,618–$276,503.

We offer financial constraints and transparency as two important mediating factors. In addition, the effect on cash dividends is dominant for banks with high common ownerships, enhanced disclosure quality, low competition, greater long-term shareholdings, and low performance-sensitive managerial incentives. Our main findings remain robust to the use of multiple proxies, alternative specifications, and three methods to address endogeneity concerns – staggered difference-in-differences based on the UTSA adoption, two-stage least squares, and propensity score matching.