Dividend Policy and Investment Decisions of Korean Banks

Abstract

The objective of this study is to investigate the inter-relationship between banks' dividend policy and investment decisions in terms of risk management and profit maximization. From the panel regression analysis, this study finds that the bank's dividend policy appears to be closely related to both incentives of profit maximization and risk management. In this study our empirical methodology is based on the general notion that the bank's expectation on future economic condition is best captured by various measures of the components of ex-ante risky asset portfolios as well as the widely used risk measures such as capital ratio, nonperforming loans and return on asset which simply reflect the bank's historical performance. We find that when the banks have positive expectation on future economic condition, they tend to increase the proportion of risky asset portfolios to maximize expected profits rather than putting highest priority on risk management of the bank, and tend to pay more dividends based on higher expected profits. On the other hand, when the expectation on future economic condition is negative, the banks tend to put highest priority on the bank's risk management by increasing the proportion of safe asset portfolios and decreasing dividends based on lower expected profits.

Managing Equity Investment Risk and Rate of Return Risk in Islamic Banking: A System Thinking Approach

“…Some essential considerations for EIR that have been presented by the SBP ( 2008 The financial sector flourishes as per the active role of risk management. How-ever, as far as Islamic banks are concerned, the concept of risk management needs to be explored (Rehman, Ibrahim, Tohiri.,Suryaputri, & Vitariamettawatym, 2016) as the vast literature is available on Non-Islamic banks (Ratnovski, 2013;Lee, 2015;Cebenoyan & Strahan, 2004). The risk management studies with respect to Islamic banking have been carried out in Gulf countries (Ali & Naysary, 2014;Abu Hussain & Al-Ajmi, 2012;Abdullah, Shahimi, & Ismail,.2011;Hassan, 2011), some other countries (Rahman, Ibrahim, Tohirin, & Suryaputri, 2016;Muhammad, 2016;Hafez, 2015) and minimal studies in Pakistan (Khalid & Amjad, 2012;Ahmad et al, 2013).…”

When Do Foreign Institutional Blockholders Passively Promote Firm Innovation in a Local Market? Evidence from Korea

“…However, a competing argument posits that foreign investors’ demand for higher dividend payouts may encourage domestic firms with large foreign blockholdings to curtail innovation activities. In a related study, Lee (2006) finds that an increase in foreign ownership does not reduce R&D investment, but does promote increases in dividend payouts. Hence, our second hypothesis explores whether the strength of foreign institutional investors’ voices affects the level of firm innovation.…”