Stakeholder Orientation and Bank Payout Policy: Evidence from US Constituency Statutes

Abstract

We investigate the impact of stakeholder orientation on bank payout policy. As a quasiexperimental setting, we exploit the staggered enactment of constituency statutes across US states, which broaden the scope of managerial duties to an extended group of stakeholders. The results of a difference-in-differences analysis suggest that bank holding companies (BHCs) incorporated in states enacting constituency statutes experience significant declines in total payouts, which is driven by a decline in share repurchases. This observed decline in share repurchases is stronger for banks with sizeable implicit claims, lower transparency and substantial agency conflicts. These findings remain intact following a myriad of robustness checks and alternative estimation techniques.

The Beauty of Being Involved: The Case of Cooperative Banks

“…They may be complementary to each other and have a symbiotic relationship. Chronopoulos, Yilmaz and Wilson (2022) underline that the impact of stakeholderism on various firm‐level outcomes has been the subject of vibrant debate for non‐financial firms, while it remains substantially overlooked in the banking industry. This is particularly surprising since banks operate with a more heterogeneous group of stakeholders than non‐financial firms – including depositors, households, small and medium enterprises (SMEs), corporate and sovereign borrowers, employees, regulators, supervisors, shareholders, debt holders, other banks and monetary authorities – facing unique challenges in balancing their conflicting interests (Cumming, Girardone and Sliwa, 2021).…”