Determinants of Dividend Policy in Banks in the United States: A Multidimensional Approach

Dividend policy in the banking sector remains a pivotal area of financial research, offering insights into a bank's financial health and operational strategies. This study investigates the determinants of banks' dividend policies by integrating theoretical frameworks such as the Fama-French model, Risk-shifting theory, Signalling theory, and Lifecycle theory. Utilizing data from 2015 to 2023, the research examines internal factors (profitability, size, growth prospects) and external influences (macroeconomic conditions, regulatory environments). A panel data regression model is employed to analyse the impact of these variables on dividend payout decisions, incorporating the effects of recent market disruptions like the COVID-19 pandemic and regulatory changes. The findings reveal significant relationships between profitability, size, growth prospects, macroeconomic conditions, regulatory environments and dividend policies The findings highlight significant relationships between profitability, size, growth prospects, macroeconomic conditions, regulatory environments, and dividend policies. Notably, bank-specific characteristics such as size and profitability play a dominant role, supporting the Signalling theory that dividends serve as a signal of financial health. Additionally, banks with high asset growth rates tend to prioritize reinvestment over dividend payouts, reflecting the Lifecycle theory. The study also suggest that macroeconomic conditions, proxied by GDP growth, and regulatory pressures, proxied by capital adequacy requirements, positively influence dividend decisions. These insights offer valuable implications for investors assessing bank stability, for policymakers in designing regulations, and for financial institutions in optimizing their dividend strategies. The findings highlight the importance of flexible dividend policies that can adapt to economic disruptions, such as the COVID-19 pandemic, underlining the need for adaptability in dividend strategies.