Conference Agenda

This paper analyses the impact of banks' dividend restrictions on the behavior of banks' institutional investors. Using within-investor variation and a difference-in-differences setup, I find that mutual funds, especially high dividend-paying funds, reduce their ownership in treated banks during the 2020 payout restrictions in the Eurozone. This reduction is not reversed after the abrogation of the policy. Using data before the introduction of the ban also reveals a positive relationship between fund ownership and banks' dividend yield, highlighting the importance of dividends for European banks’ fund investors. This reaction also has pricing implications as suggested by a negative relationship between cumulative abnormal returns around the restriction announcements and the percentage of fund owners per bank.

We construct a global capital buffer announcement dataset, capturing the direction and intensity of measures for the pandemic years 2020 and 2021. Using a panel VAR model, we examine the responses of stock prices to these announcements for 52 countries. We find that stock prices reacted negatively to capital buffer easing announcements. The negative response was driven by Capital Conservation Buffer (CCoB) announcements, while markets barely reacted to announcements related to other buffers. We find no differences between the responses of overall and financial sector indices. Moreover, sample splits reveal cross-country heterogeneity in stock price responses to CCoB announcements. Our recommendations support a stronger reliance on the Countercyclical Capital Buffer (CCyB) during periods of stress.

We study the impact of state-contingent dividend taxes (and bans) and capital regulation on a firm's optimal strategy and value. The firm generates stochastic income under time-varying macroeconomic conditions. Its manager distributes dividends and issues costly equity to maximize shareholder value. We solve the manager's stochastic control problem and derive the firm's reserve distribution in closed form. Imposing dividend taxes (or bans) during crises generates a trade-off, as it encourages reserve accumulation in bad states but promotes payouts in good ones. The policy undermines financial stability by reducing the firm's value and recapitalization incentives across states. Coordinating dividend taxes with counter-cyclical capital regulation can mitigate value losses and ameliorate the trade-off, but it also creates additional recapitalization disincentives.