A Comparison Of Dividend Policy Of UK And US Banks Over The Period 2003 2007 From Shareholders Point Of View

Kingston University, London Kingston Business School M.Sc in Accounting and Finance

Zahid Nawaz Ghauri K0731305

October 2008

i
Electronic copy available at: http://ssrn.com/abstract=1321451

Abstract:
In my research study, I compared the relationship between the dividend policy of UK banks and the USA banks from the shareholders point of view. The shareholders are free to invest everywhere in the world. There is no legal or economical constrain on them to invest only in their home country. They are absolutely free to invest their money wherever they want. In my research study, I examined whether it is beneficial for the shareholders to invest either in UK banks or in the USA banks.

The analysis of my research study consists of 11 UK banks and 15 USA banks. So the total numbers of banks in my research study are 26 banks. My analysis of the research study consists on the data from the year 2002 2007. To analysis the shareholders wealth for the specific year t, I used the data of the previous year t-1 in my research study. To get the result of my data, I used multiple regression analysis. The statistical techniques which I used in my research are p-value, t-statistics, and coefficient correlation and adjusted R2. To broaden the research study, I considered three more independent variables in my multiple regression analysis. I also used dummy variable 0 for all UK banks and 1 for all the USA banks.

The evidence of my research study shows that in UK banks there is more relationship between the shareholders wealth and the dividend policy than in the USA banks. By considering the 4 independent variables used in the research study, the adjusted R2 value of UK banks is more than the USA banks with respect to the dependent variable, which shows the more relation between the shareholders wealth and the dividend policy in UK banks than the USA banks.

iElectronic copy available at: http://ssrn.com/abstract=1321451

Declaration:

I declare that this dissertation is all my own work and the sources of information and material I have used (including the Internet) have been fully identified and properly acknowledged as required.

ii -

Acknowledgement:

I wish to thank my supervisor, Dr Natalia Isachenkova, for her excellent guidance.

iii -

Contents
Abstract

Page
i ii iii

Declaration Acknowledgements Contents of the research Study Chapter 1: Introduction ...................................................................................

1 3 3 4 4 4

Chapter 2: Literature Review................................................................................. 2.1.1 Dividend Policy .................................................................................... 2.1.2 Shareholders wealth ............................................................................ 2.2 What are the factors which may affect the dividend policy .................... 2.2.1 Free Cash flow............................................................................

2.2.2 Government Regulations............................................................. 4 2.2.3 Investment Opportunities .................................................. 5

2.2.4 Productivity of Manager............................................................... 5 2.2.5 Corporate Governance.................................................................. 6 2.2.6 Hesitation to Cut the Dividend........................................... 2.2.7 Dividend Reinvestment Plans (DRIPs)....................................... 7 7

2.2.8 Maturity and Stability of the Company....................................... 7 2.3 Is the dividend policy related with the shareholders wealth? ................... 7 2.3.1 2.3.2 Abnormal Dividend ................................................................. 8 Share Repurchase .................................................................. 8

iv -

2.4 Decision for Dividend size (Amount)......................................................

2.5 How do the shareholders get return from the dividend policy? .............. 10 2.6 How to compute the shareholders wealth .............................................. 2.7 Dividend Policy Theories......................................................................... 10 13

2.7.1 Miller & Modigliani.................................................................. 13 2.7.2 Dividend Policy in an imperfect market...................................... 14 2.7.2.1 Dividend as Residual ................................................. 14 2.7.2.2 Clientele Effect ........................................................... 14 2.7.2.3 Dividend as Signal ..................................................... 15

2.7.2.4 Tax Consideration ....................................................... 15 2.8 Is dividend policy affected by contagion?.................................................. 16 2.9 What is the trend of dividend in USA and UK from 1981 to 2002?........ 17 2.10 Is there any similarity of dividend policy in USA or European countries?18 2.11 Credit Crunch ........................................................................................ 19

Chapter 3: Methodology.......................................................................................... 20 3.1 Empirical Design........................................................................................ 20 3.2 Component of Research Methodology.................................................... 21

3.3 Regression Analysis.................................................................................. 23 3.4 Design the research method .................................................................... 3.4.1 Hypothesis for the Research..................................................... 25 26

3.4.2 Sample for the research............................................................. 26 3.4.3 Proxies for the hypothetical determinants................................. 27

v-

Chapter 4: Results ................................................................................................... 4.1 Meanings of the indicators.......................................................................

33 35

4.2 Results of the hypothesised regression model.......................................... 37 4.2.1 Discussion of the univariate results from the full sample........... 37 4.2.2 Credit Crunch Effect for univarite analysis................................ 40 4.3 Discussion of the multivariate results from the full sample .................... 42 4.3.1Credit Crunch Effect on multivariate Analysis .......................... 45 4.3.2 Discussion and comparisons of the multivariate results of UK and the USA banks dividend policy and shareholders wealth .......... 47 Chapter 5: Summary and Conclusion....................................................................... 49 References................................................................................................................. 51

Financial Data ............................................................................................................. 66

vi -

Chapter 1: Introduction The purpose of my research study is to compare the dividend policy of the overall UK banks and the USA banks with reference to the shareholders point of view from the year 2003 - 2007. This research will help to find which countries dividend policy is more attractive for the shareholders. Should the shareholders go to invest in the USA banks or in UK banks to maximize his/her return on the investment? My research study is concerned with an analysis of data on UK and the USA banks from 2003 2007 for the impact of dividend policy on shareholders wealth.

To compare the dividend policy of UK and the USA banks, my investigation time period consists of 5 years which is from the year 2003 2007. To compare the dividend policy of these both countries, I took the data of 11 banks of UK and 15 banks of the USA from
the year 2003 2007. The names of the banks of the both countries are shown in chapter 3.

In my research study, I used market-to-book value ratio to measure the shareholders wealth and to analyse the dividend policy I used dividend payout ratio. To consider the dividend policy in depth and its effect on the shareholders wealth, I also included three more ratios in my research study i.e. return on assets ratio, leverage ratio and the net margin ratio. I used dividend payout ratio, return on assets ratio, leverage ratio and net margin ratio as the independent variable and market-to-book value as the dependent ratio in my research study.

In my research of comparing the dividend policy of UK and the USA banks from the shareholders point of view from 2003 - 2007, I used some statistical descriptions like mean, median and standard deviation and also used some statistical techniques like pvalue, t-statistics, coefficient correlation, adjusted R2 and multiple regression analysis.

1-

I divided this research studies into 5 chapters. Chapter 1 is for the introduction of my research. Chapter 2 elaborates the literature review associated with the title of the research. In this chapter, I interpreted the theories, polices and the models related with the dividend policies from the shareholders point of view. In Chapter 3, I explained the methodology of my research studies i.e. how did I collect the data, which methods I used for the research, which techniques I used and how did I applied these techniques on the data to get the results. In Chapter 4, I reported all the results from the statistical techniques, explained what these techniques stand for and then explained all the results from the shareholders point of view. The Chapter 5 is the conclusion chapter of my research study and it summarizes and concludes all the findings of the research study.

2-

2.1 Chapter 2 (Literature Review): There are a range of theories and models in efforts to provide explanation for the dividend policy of the companies and how it is related with the shareholders wealth. Some of these theories use qualitative data and others use quantitative data to explain the policy of the dividend from the shareholders point of view. In this chapter, I explained the dividend policies and models from the shareholders point of view. But before describing these models and the theories of dividend policy from the shareholders point of view, first of all we should know what is meant by the dividend policy and the shareholders wealth?

2.1.1 - Dividend Policy: Dividend Policy is defined as Dividend policy is the determination of the proportion of profits paid out to shareholders usually periodically. (Arnold, 2005, P1010) and its the board of the directors who set the dividend policy of the business (Brealey & Myers, 2003).

It is also the part of the dividend policy of a corporation to decide whether to pay direct cash dividend to its shareholder and, if so then how much to pay and how ofen (i.e. monthly, quarterly, semiannually or annually) to pay or increase the shareholders wealth by purchasing the shares from the market i.e by increaseing the price of the shares in market (Canina, Advani, Greenman, & Palimeri, 2001).

There is a misconception regarding the dividend policy that each company has to pay dividend every year as the return on the investment of its shareholders. To make the point clear, there is no obligation on the firm to pay dividend every year to its shareholders. The common stock shareholder bears more risk than the bondholders as the bondholders receive fixed income irrespective of the operations and profits of the business and the common stockholder has no promised for any payments in future (Emery, D.Finnerty, & Stowe, 2007).

3-

According to Canina, Advani, Greenman, & Palimeri (2001) there are a large numbers of variables which may affect the dividend policy, such as whether to pay dividend via share repurchase or specially designated dividends rather than dividends on a regular basis.

2.1.2 - Shareholders wealth: Shareholders wealth is the discounted value of after-tax cash flows paid out be the firm. After-tax cash flows available for consumptions can be shown to be the same as the stream of dividends, Divt , paid to shareholders (Copland, Weston, & Shastri, 2005, P.20)

2.2 What are the factors which may affect the dividend policy? The dividend policy of financial institutions depends on the following factors which may affect the shareholders wealth.

2.2.1 Free Cash flow available in business. If there is free cash flow then it is better for a business to pay higher dividend as the higher dividend removes free cash from the hands of the managers and they have less money and resources to waste (Bhattacharyya & Winnipeg, 2003). This dividend policy is successful where the shareholders do not take much interest in the business and the business has a very large number of shareholders as well as free cash in business. According to Jensen (1988), if the firm is to be efficient and to maximize value for the shareholders then the firm must be paid free cash flow to its shareholders. But, on the other hand, this free cash flow reduces the resources which are controlled by the management, thereby reducing the power of managers and potentially subjecting them to monitor capital markets that occur when a firm needs new capital in future (Jensen, 1988).

4-

2.2.2 Government Regulations: Sometimes government also regulates for the limit of dividend payment to maintain the sustainable growth in the shareholders wealth. Government interferes in the dividend policy of the financial institutions by making rules, regulations and the corporate laws for the security of the shareholders and for the economical conditions of the country. For example Once in Japan, the Dividend

guideline (the guideline) issued by the Ministry of Finance (MOF) of Japan, restricted dividend payment by Japanese banks within 40% of their net income (Kato, Kunimura & Yoshida, 1997, P 2). According to Burkart, Panunzi, & Sheleifer (2003), one of the crucial factors which helps in shaping the attractiveness of the delegated management is the legal protection for the outside shareholders from expropriation of the business by the insider. So the rules, regulations and laws also play vital role in developing and choosing the dividend policy for the security and the return of the shareholders wealth. If the government has no rules, regulations and corporate law then the financial institutions may give dividends to the shareholders by borrowing the money.

2.2.3 Investment Opportunities: The other important factor which may affect the shareholders wealth is the investment opportunities for the operations of the business. Mostly businesses have ample profitable investment opportunities in the early stages of their life cycle so in such a situation they retain all funds for more investment because internal financing is cheaper than external financing (DeAngelo, DeAngelo & Stulz, 2005). Due to this dividend policy, the shareholders do not get the high dividend cash and the company seeks to increase the price of the shares in the market so that the shareholders may get the capital gain. According to C.Higgins (1972), for the investment purpose the dividend should be paid as a residual i.e. if and only if the internal funds and the accompanying borrowing are sufficient enough to finance all the investment needs of the firm. This dividend policy would not increase the shareholders wealth immediately but it will increase the shareholders wealth in a considerable amount in the coming years.

5-

2.2.4 Productivity of Manager: The amount of the dividend policy is also dependent on the productivity of the managers. A manager with a higher productivity would invest in the business more than a lower productivity manager. Similarly a manager with a lower productivity would invest in the business less than a higher productivity manager (Bhattacharyya & Winnipeg, 2003). So this dividend policy also affects on the shareholders wealth. From the shareholders point of view, a manager with a lower productivity will create more wealth for the shareholder. According to this dividend policy, most of the companies do not pay cash dividend to the shareholders on the regular terms/basis and they pay low cash dividend as compared to the other companies.

2.2.5 Corporate Governance: The other factor which may affect the dividend policy of the business is the agency cost. If a business wants to reduce its agency cost and to increase the shareholders wealth then the business should pay the high dividends to its shareholders. High dividends can reduce agency costs by attracting institutional investors. This also reduces the level of information asymmetry as well. High dividends attract institutional investors (Khang & King, 2002, P2). According to Brailsford, Oliver, & Pua, (2002), it is the managerial share ownership that has been suggested as a mechanism which reduces the agency conflict by keeping the balance in the interest of the shareholders wealth and the management. Actually dividend policy is a vehicle for the long-term relations between the managers and the shareholders wealth which may be used to address the agency problems arising from incomplete contracting and the information asymmetry between the two parties (Faccio, Lang, & Young, 2001). According to Pinkowitz, Stulz, & Williamson (2006), in the presence of good corporate governance, the management finds it more beneficial to increase the shareholders wealth than to expropriate the minority shareholders.

According to Li (2006), the entrepreneur is wealth constrained and it is not possible for him to hold the total firm. The entrepreneur has to give incentives to the shareholders to share the profit. The amount of profits, he diverts actually depends on the level of the shareholders protection and the percentage of the shares he owns in the business. The

6-

more shares he owns in the business it is better for the shareholders protection as he would not divert more portion of the profit towards the private benefits.

2.2.6 Hesitation to Cut the Dividend: The other factor which may affect the dividend policy is
the hesitation to cut the dividend. Mostly firms feel reluctance to reduce the historical

dividend rate. This is because the reduction in dividend payout is considered as a negative signal in the market and for the shareholder (R.Emery, Finnerty, & D.Stowe, 2007). From shareholders point of view, reduction in the dividend payout means that now the company is not as financially strong as it was before and that is why the business has reduced the dividends. 2.2.7 Dividend Reinvestment Plans (DRIPs): The other factor which may affect the dividend policy of the business is the use of DRIPs. The large companies use DRIPs, in which the stockholders may reinvest the dividends in the stock of paying corporation by themselves (F.Brigham & Houston, 2004). By this dividend policy, the business does not sell its shares in the open market to the new shareholders but invites its existing shareholders first to purchase the new shares. In this dividend policy, the company gives preference to its existing shareholders over the new shareholders for investment in the business. From the shareholders point of view, if the business is paying better dividends than the other companies then the shareholders would be attracted towards the DRIPs.

2.2.8 Maturity and Stability of the Company: The dividend policy is also dependent on the maturity and the stability of the companies. Mature companies, with stable earnings, generally payout a high proportion of earnings. (Brealey & C.Myers, 2003, P437)

2.3 Is the dividend policy related with the shareholders wealth? According to Hall & Brummer (1999), the goal of the firm should be focus soundly on an increasing the shareholders wealth. While making the financial policies, including the dividend policy, the management should always consider the shareholders wealth and

7-

the value of the business. Whatever the dividend policy is adopted by the business, it should not decrease the value of the business and the shareholders wealth.

2.3.1 Abnormal Dividend: According to Faulkender, Thakor and Milbourn (2006) if a business is paying abnormal dividend to diminish free cash, only then these dividends will
increase the value of the firm and the shareholders wealth. Otherwise, abnormal dividend

will not only decrease the value of the firm but it will also decrease the shareholders wealth as well as the working capital of the business. (Faulkender, Thakor & Milbourn, 2006)

According to Blair (2003), there is another theory regarding the dividend policy that the wealth created by the firm would be captured by the other participants (like the lenders and the Government) not only by the shareholders, who actually provide the financial capital for the business. So at the time of making the dividend policy one should consider only the wealth of the shareholders i.e. how to maximize the shareholders wealth instead of diverting wealth towards the other participants. 2.3.2 Share Repurchase: The rise of share repurchase programs does not explain the decline in cash dividends, since Grullon and Ikenberry and others find that similar types of firms pay dividends and repurchase shares. In other words, empirical evidence shows that repurchases and dividends are complements, not substitutes. (Eije & Megginson, 2007, P7).

According to Galai & Schneller (1978), in analysing the effects of a dividend policy of the company, one should examine the impact of the dividend policy on the current wealth of the shareholders. The main aim of the dividend policy should be to increase the shareholders wealth. The dividend policy (part of the financial policy) affects on the total value of the business and to the shareholders wealth. So while making dividend policy one should always prefer to increase the value of the firm and how it may be benefited to the stockholders.

8-

2.4 Decision for the dividend size (Amount): The actual amount of the dividend paid from cash flow is purely decided by the management of the company. While making the decision they should have only one thing in mind i.e. how to maximize the shareholders wealth. According to Baker, Veit, & Powell (2001), these are the managers, specifically CEO or CFO of the firm, who pay fully consideration on chosing the dividend policy for the firms.

According to Emery, D. Finnerty & Stowe ( 2007), it is the board who choses between either to pay dividend from earning or to reinvest the money in to the business. The simplest way to describe the dividend policy is the computation of the dividend payout ratio. Dividend payout ratio is the proportion of the dividend to the total earnings. The payout ratio is expressed as the cash dividend as a proportion of its earnings and mathematically it is fournd as: Dividend Payout Ratio = Annual dividend Net Income (Porter & Norton, 2004)

The decision of the dividend payout ratio (i.e. the dividend policy) also differs from the private banks to the public banks. According to Cloyd, Robinson, & Weaver (2005), A comparison of the dividend response for private versus public firms around a reduction in dividend taxes provides a unique opportunity to test the extent to which (1) individual taxation discourages corporations from paying dividends and (2) dividend policy is influenced by nontax considerations (Cloyd, Robinson, & Weaver, 2005, P1). So the dividend policy is very dependent on the income tax (in case of getting cash dividend) as well as the capital tax (tax on making profit while selling shares). If the income tax for the shareholders is less than the capital tax then to increase the shareholders wealth it is beneficial for the company to give more dividend to the shareholders instead of repurchasing or increasing the value of the shares. In private banks these both tax rates are considered more important factors than in public banks. The reason is this that in private banks there are less shareholders. If the private banks issue dividends then the
shareholders have to pay more income tax on the amount of money received as dividends.

9-

2.5 How do the shareholders get return from the dividend policy? Companies provide investors with returns in two different ways: a regularly schedule dividends or a probabilistic capital gain or loss (Fuller & Goldstein, 2003, P1). Most of the companies pay dividend quarterly on a regular cash basis, but occasionally these regular dividend is supplemented by a special dividend (Brealey & C.Myers, 2003). Sometimes companies also repurchase their own shares and as a result of repurchasing the shares from the market, the price of the shares rises. This process of repurchasing share is an alternative way to distribute cash to its shareholders in contrast to a dividend payout. (Arnold, Gillenkirch, 2002). Due to the repurchase of the shares, the price of the shares increases and this increment in the share price is a capital gain for the shareholders/investors. According to Ofer & Thakor (1987), when the dividend is paid in the form of cash it is payable to all the shareholders including the managers of the business. As the dividend is received by the managers, it is part of the managers investment portfolio received the dividend and it can be reinvested in the business if it suits to his/her risk preferences. But only to the tendering shareholders cash distribution accrues through a stock repurchase (Ofer & Thakor, 1987).

2.6 How to compute the shareholders wealth? According to Baker, Veit, & Powell (2001), most financial practitioners and many academics experts concluded with surprise that a properly managed dividend policy has a significantly positive impact on the share prices and the shareholders wealth. The dividend policy has a direct impact on the price of the shares and the shareholders wealth. Good dividend policy has a positive impact on the price of the shares of the business while the bad dividend policy not only decreases the price of the shares but it also discourages to the shareholders and they withdraw money from the business.

The research which was published in the working paper series of European Central Bank (September 2006), Castrn, Fitzpatrick and Sydow found that it is the market prices of the bank securities like equities that provide important information for market participants, for central bank (who are also responsible for financial responsibilities) and for bank supervisors, from the following perspectives. First of all, that banks equity

10 -

price effectively indicates the public information which is available from the bank. Then the working under the efficient-market (a market where information is available to all the users) hypothesis, banks securities prices at any point in time have a forward looking component in that they incorporate expectations of both future earnings prospects (i.e. positive and negative). Then the share price of the bank is available at much higher frequency compared with the accounting information and the last perspective is that if there is a financial disturbance in one bank then this disturbance spreads through various channels and this may be reflected in the stock markets. So it is very important to know to what extent the individual banks stock prices are driven by common versus bank special components. (Castrn, Fitzpatrick & Sydow, 2006)

The other factor which may affect the wealth of the shareholder is the announcement of the splitting the stock. According to F.Brigham & Houston (2004), when the company announces a stock split or the company announces the dividend for the shares, then the prices of the company share rises. This increase in share price actually increases the shareholders wealth. The stock prices are also dependent on the spliting stock or dividend. The price of the stock after the split can be found by the following formula Price After = Pricebefore 1 + % stock dividend = Price before stock split factor (Emery, D. Finnerty, & Stowe, 2007, P535)

While according to E.Copland, Weston, & Shastri (2005),Friend and Puckett (1964) tested the effect of dividend payout on the share value by using cross section data. Friend and Puckett calculated a normalized earnings variable based on a time-series and found the following equation (NI/P)it (NI/P)kt = ai + bit + it

Where: (NI/P)it = earnings/price ratio for the firm

11 -

(NI/P)kt = average reanings/price ratio for the industry t = a time index

it = the error term

but unfortunately, no one tested to see the performance of this equation. (E.Copland, Weston & Shastri, 2005) The other factor which may affect the wealth of the shareholders or the value/price of the stock is the stream of the present value of the dividend. There may be three types of cases which explain the value of the stock or the shareholders wealth.

1- According to Megginson, Smart, & Lucey (2008), the simplest approach of dividend valuation where the dividend does not grow and the amount of the dividend remains the same every year, the value of the stock can be find the amount of dividend paid divided by the present value. Mathematically, it is expressed as P=D r 2- But, the shareholders/investors want to invest their investment in such a business where the return on their investment has an increasing trend or there is a growth in the return of their investments. Shareholders are also interested in the growth rate of a firm and its impact on the stocks value (Emery, Finnerty, & Stowe, 2007). To find the value of such stocks, according to F.Brigham & Houston (2004), if the firm increases the amount of the dividend with the constant growth rate then the value of the stock can be found by the following equation: P = D ( 1+g) + D (1+g)2 + D (1+g)3 + .............. D (1+g) 1+ks P = (1 + ks)2 D0(1 + g ) = ks -- g (1 + ks)3 D1 ks -- g . (1 + ks )

12 -

3- According to F.Brigham & Houston (2004), the value of the stock today can be found by the calculating the stream of the present value of the dividend. Mathematically it is shown as the following equation Value of the Stock = D1 (1+ r) + D2 (1 + r)
2

D3 + (1+r)
3

.......... D (1+r)

2.7 Dividend Policies Theories: The dividend policy theory may be explained under two market situations i.e. perfect and imperfect market. In perfect market situation we have Miller and Modigliani theory which is explained as follows: 2.7.1 - Miller & Modigliani (M & M) (1961): According to M&M dividend policy theory Share holders in business with financial gearing will expect a return that is equal to the returns expected from investing in a similar ungeared business plus a premium which arises in direct proportion to the level of gearing (Atrill, 2003, P 266 ). Its mean whether the shareholders invest in a geared company or in ungeared company, the shareholders will always get the same return on their investment. M&M states that the rate of return on the investment is independent on the dividend policy; i.e. the investor is indifferent between the capital gain and getting the dividend (Brigham & Ehrhardt, 2005). The shareholders wealth is not affected by the capital structure of the business as the shareholder will get the same return whether the company has geared or ungeared capital structure. The M & M theory based on the following four assumptions: a) Perfect Capital Market: Its mean that there is no share transaction cost for the shareholders as well as for the company and company may borrow money as much as it requires at the same rate of interest. (Atrill, 2003,) b) No bankruptcy cost: Its mean that the shareholders will receive the same amount of cash, which would be equal to the value of their shareholding, if a business liquidates. Businesses do not have to pay any legal or administrative fee

13 -

to sale its assets. (Atrill, 2003) c) Risk: It is assumed that businesses exist that have identical operating risks but which have different levels of borrowing (Atrill, 2003, P270) d) No Taxation means that business is working in tax free environment i.e. no corporate tax on the business or no personal income tax on the shareholders. (Atrill, 2003) 2.7.2 Dividend Policy in an imperfect market:

2.7.2.1 Dividend as Residual: The other important dividend policy is the Dividend as residual. Actually, the most desirable payout ratio of the business depends on the following factors: a) What are the investors preferences for dividend versus capital gains? b) What are the firms investment opportunities? c) What is the targeted capital structure of the firm? And d) How much external capital is available and at what cost? According to Brigham, Gapenski and Ehrhardt (1999), dividend as residual theory is the combination of the last three points. According to this theory, it is also assumed that there is no possibility for adopting external finance because it is too expensive for business to improve or maintain the shareholders wealth. The shareholders wealth is measured as market-to-book value. According to Emery, Finnerty, & Stowe (2007), a high ratio of market-to-book value shows that the firm has created more wealth in market value than the GAAP rules have recorded in book value.

2.7.2.2 Clientele Effect: Clientele effect explains the preference of shareholders to invest either in high-cashdividend stocks or in low-cash-dividend stocks (Emery & Finnerty, 1991). According to

14 -

Lumby & Jones (2003), the theory of the dividend irrelevancy is applicable only in perfect capital market. But there are also many imperfections in the market like the transaction costs, the presence of absolute capital rationing, different tax rates and the difference rates of interest. All these factors impact the dividend policy of the company (Lumby & Jones, 2003). From the shareholders wealth point of view it is the important factor because if the tax rate of capital tax is more than the tax rate of income tax then the shareholders will prefer to invest their investment in the company who has the high-cashdividend policy. Similarly, if the tax rate of capital tax is less than the tax rate of income tax then the shareholders will prefer to invest their investment in the company who has low-cash-dividend policy. In the same way, if the capital tax rate of one country is less than the other countrys captial tax rate then the shareholders will move to invest their money in that country where the capital tax rate is less than the other country. So due to this clientele effects, the dividend policy plays important role in measuring the shareholders wealth.

2.7.2.3 Dividends as Signal: The other imperfection in the capital market is the decision of dividend regarding the need for information in an uncertain world. The signal effect of the dividend declaration plays an important role for companies. Research has shown that the increase or decrease the expected level of dividend precipitates a rise or fall (respectively) in the market share price. It shows that the declaration of divided has a major impact on the share price while considering the decision (Lumby & Jones, 2003). So this signal effect which is derived from the dividend policy has a great impact on the shareholders wealth. A good signal derived from the dividend policy impacts a good effect on the shareholders wealth. On the other hand, a bad signal derived from the dividend policy effect badly on the shareholders wealth.

2.7.2.4 Tax Consideration: The other factor of the imperfect market is the taxation and specially differential rates of personal income tax, a taxation distinction between income and the capital gain (Lumby & Jones, 2003). According to Ross, Westerfield, & Jaffe (1999), the dividend received as cash is treated as an ordinary income in tax. One the other hand, capital gains are mostly

15 -

taxed at somewhat lower rate. The major problem with the presence of taxation is that it can interfare with the values equivalence between the retained earnings and the dividends. As some shareholders may prefer home-made dividends because the capital gain tax rate is mostly lower than the marginal income tax rate (Lumby & Jones, 2003).

2.8 Is dividend policy affected by contagion? It is well-established notion that stock prices respond to new information. Numerous studies over the past 30 years have documented the stock markets reaction to corporate announcements such as earnings, dividends and security offerings. (Bessler & Nohel, 1999, P1). Although such announcements are firm-specific but they may contain valuerelevant information about other related non-announcing firms causing the stock prices of those firms to react to the same news. (Bessler & Nohel, 1999)

Contagion effects also play important role in forming the dividend policy of the business. For example information of the bankruptcy announcements, change in the value of the seasoned equity issues and the dividend change policy of the companies in the same industry also influences the dividend policy of the business. (Bessler & Nohel, 1999)

Bessler and Nohel (1999) tested the contagion effect on banking sector. They tested contagion effect on non-announcing money centre banks and large regional banks. In the research, Bessler and Nohel they found that non-announcing money-centre suffers negative abnormal returns when rival money-centre banks announce dividend cuts.

They also separately tested contagion effect in non-announcing money centre banks and large regional banks. They found non-announcing money-centre banks suffer negative abnormal returns when the rival money-centre banks announce dividend cuts. The correlation of assets (loan portfolios) i.e. the correlation of private information, are banks

16 -

implies that the revelation of private information through a managerial announcement should trigger contagion effects if investors have the ability to identify the correlation of private information across banks. (Bessler & Nohel, 1999, P3)

In the research of Bessler and Nohel (1999), they found that some Eastern money-centre banks cut their dividend in late 1990 and early 1991. Among these banks some of them were cutting dividend first time in 50 years. The contagion was so effective that some western money-centre banks followed suit in the rest of 1991 following Eastern moneycentre. (Bessler & Nohel, 1999)

In the end of the research of Bessler and Nohel (1999) they found that the investors are able to identify the nature of the correlation of asset returns across banks. Specially, they found that the abnormal returns of non-announcing banks are systematically related to risks common to both announcing and non-announcing banks. (Bessler & Nohel, 1999)

2.9 What is the trend of dividend in the USA and UK from 1981 to 2002? Following is the data (quantitative) of UK and the USA from 1981 to 2002 which shows the percentages of firms paying the dividends and the percentages of companies not paying the dividends. The table 2.1 shows the trend of dividend paying and non-paying companies in UK and in the USA prior to my research study period. In the table 2.1 P shows the percentages of the firms paying the dividend and NP shows the percentages of the firms not paying the dividend. (The following data is the derivative (calculated percentages for the original data) of the data available in the research of Denis and Osobov (2007, P37). In the table I took the values of only two countries i.e. UK and the USA.)

17 -

Table 2.1 (Trend of dividend paying and non-paying companies in UK and in the USA from 1981 - 2002) 1981 --- 1985 1986 --- 1990 1991 --- 1995 1996 ----- 2002 % of % % of % of % Of P Countries UK USA firms 97 60 NP firms 3 40 OF P NP % OF P Firms 86 47 NP Firms 14 53 % OF P Firms 73 23 % of NP Firms 27 77

Firms Firms 94 63 6 37

Source: (Denis and Osobov, 2007, P37) From the above table, it is clear that in UK the percentage of firms paying dividend is always more than the USAs percentage of firms paying dividend. However, in UK, from the year 1981 to onward there was a decreasing tendency of the percentage of paying the dividend.

2.10 Is there any similarity of dividend policy in the USA or European countries? In the research of Eije & Megginson (2007), they made unique new contributions by either documenting differences between Europe and America or by examining the factors not considered in the U.S. context. In the research, Eije & Megginson found that older companies and those companies who have headquartered in a common law country are more likely to pay dividends, while higher leverage and more liquid company stocks reduce the propensity to pay. On the other hand, they also found that companies with more liquid stocks pay more dividends, and higher dividends are paid when these are subject to favourable tax treatment (Eije & Megginson, 2007). In our research study both countries have common law.

18 -

2.11 Credit Crunch: In the mid of 2007 in UK, the financial markets got lots of attraction of the media because of the widespread speculation in the cause and effects on the so-called credit crunch. This credit crunch was so swerve that the Bank of England had to issue a paper in the first quarter of 2008 in which the Bank of England addressed the causes and effects and provided remedies to solve these problems and to avoid any further distress in the financial market. (Katz, 2008)

On the other hand, just four years before the year 2007 in the USA, the booming macroeconomic, liquidity and the ideal financial environment and the continuous process of financial globalisation lead to reduce the risk aversion and market variation (Yiannaki, 2008). According to the Yiannaki (2008), the financial institutions and the banks wanted the higher return and they were creating luring products to achieve the American Dream. This financial crisis of 2007 2008 is directly related with the credit crunch. All the teams of the risk management of banks and the boards of the directors in the USA were focusing on the credit policies and its effects (Yiannaki, 2008). According to the Yiannaki (2008), the important factors which caused the credit crunch were inflation rate, increase in oil prices, depreciation of dollar and the bank interest rate.

From all the above, it is clear that there are many theories and models related with the dividend policy of the business. Each business has its own policy for the dividend. There are lots of factors which may impact on the dividend policy of the business as well as on the shareholders wealth. There may be factors which may have greater impact on the dividend policy in the specific industry or country and the same factors may have a very small impact on the dividend policy in the other industry or country. In different circumstances, different factors affect the dividend policy and the shareholders wealth of the business. There is also a conflict between the dividend policies and the theories. Some says that the high dividend payout ratio increases the shareholders wealth and some say that it should not be higher as for the long term investment and to increase the market value of the business in future.

19 -

Chapter 3: Methodology: I divided this chapter in to 4 sections. In section 1, I explained the purpose of my research i.e. who are the beneficiary of this study and how may this research study help them? In section 2, I explained the components of the research and the elements of the researchs methodology. In section 3, I explained the statistical techniques of the multiple regression analysis and define there about the multiple regression equations and the variables used in the equations. In the concluding section, I explained the design method of my research study. I divided this section in to further three subsections for more clarification and explanation.

3.1 Empirical Design: The purpose of this research is to analyse and to compare the dividend policy of UK banks and the USA banks from the shareholders point of view. Every shareholder invests in a business to get the maximum return on his/her investment. This return on investment of the shareholder is dependent on the dividend policy of the firm. It is the dividend policy of the business which decides whether to pay cash dividend or not. If yes then, when to pay dividend, how to pay dividend and how much to pay dividend (as discussed in Chapter 2). Shareholders will move towards those banks which give more returns on their investment than the other banks. Every shareholder has his/her demand on the money invested. According to Emery & Finnerty (1991), some shareholders give preference to low-cash-dividend stocks while others prefer for high-cash-dividend stock. Similarly, some shareholders may be interested in high dividends and others may be interested in low-cash-dividend but increasing the price of the stock. There may be many factors for this. As one of the major factors is the difference of tax rate between the income tax and the capital gain. Similarly, the requirements of the shareholders are also dependent on the needs of their lives. Like pension holders will purchase the stock of those banks which pay high cash dividends and a shareholder who purchase the stock for his/her new born child will invest in that bank which pays comparatively low cash dividend but its stock price increases with high rate.

20 -

The purpose of this research study is to analyse and compare the effect of dividend policy of UK and the USA banks on shareholders wealth. Which countrys banks dividend policy is more or less affected on the shareholders wealth? In other words, this research may guide the shareholders to invest their money according to the demand on their investment. Which countrys banks are more feasible for each shareholder to invest his/her investment. The purpose of this research is also to find out the relationship between the shareholders wealth which is measured as market-to-book value and the dividend policy which is measured as dividend payout ratio. That is how the dividend policy impacts on the shareholders wealth. What are the other factors which may affect the shareholders wealth excluding the dividend policy? Are these factors have the same effect in the USA and in UKs banking sector or there is a variation in the USA and in UKs economy? Do the policy of paying dividend is the same in UK as in the USAs banking sector from shareholders point of view? If they are different then in which way?

3.2 Components of Researchs Methodology: To analysis and comparison of the dividend policy of the banks of the USA and UK from the shareholders point of view, I used a quantitative research technique. Actually, quantitative research approach is objective in nature and it concentrates on measuring the undergoing phenomena. The quantitative approach involves both collecting and analysing the numerical data and then applying the statistical tests on the collecting data (Hussey & Hussey, 1997). I used the same structure of the researchs methodology in my research. First of all, I collected the data from different sources then I analysed my numerical data and arranged the data according to the names of the countries and time period. At the end, I used different statistical techniques to get the results. In collecting the numerical data, I used data stream, Thomson one banker, and for some banks, I downloaded their annual reports from their websites and gathered the required numerical data for the required period. To analyse and for calculating the data, I used Ms-word, SPSS and Ms-Excel. I used different spread sheets to analyse the full sample (i.e. data of both countries banks from the year 2002 - 2007) and also analysed the numerical data for each countrys bank separately. My analysis covers the period 2003- 2007. After looking

21 -

at the description of the data, I applied some statistical techniques to get the results. In applying statistical techniques, I used SPSS to get the results. To process my data, the statistical techniques which I used are standard error, t- statistics, regression analysis, pvalue and adjusted R2. The above statistical techniques which I used to analysis and comparing the dividend policy of the banks of both countries, I did not consider the other factors (which may be related to the dividend policy and the shareholders wealth) like difference in tax rates, any subsidy taken back or given to the banking sector during the research period in both the countries, economical factors of the both countries (like inflation rate, change in the supply or demand of money, bank interest rate) or any financial crises related with any major event.

In my research methodology, I also used qualitative research methods. Qualitative research focuses on words and descriptions rather than facts and numbers. As a research strategy it has three parts inductive, constructive and interpretive (Bryman & Bell, 2003). In qualitative research methods, I described the figures of each statistical tool. First of all in chapter 4, I described all the terminologies of statistics, which I used in testing and then I explained what they actually indicates. In description, first of all I described and explained all the statistical indicators which I used in the tables. For analysis the data, I found the coefficient between each independent variable with the dependent variable of the full sample from the year 2003 2007 with the significant level and the standard error (section 4.2.1) i.e the univariable analysis. Then, I did all the same calculations for each country independently for the same period as well as by excluding the year 2007. In section 4.3, I calculated the multiple regression of the full sample with the all the four indepdents variables from the year 2003 2007. In the same section in table 4.7, I also calculated the multiple regression of the full sample with the all four independent variables from the year 2003 2006 (i.e by excluding the year 2007). Becuae the year 2007 was the year of credit crunch year and all the financial institutions in UK and in the USA were in a financial distress. In the same section, table 4.8 and table 4.9 show the

22 -

individual multiple regression of UK and the USAs data respectively from the year 2003 - 2007.

3.3 Regression Analysis: In my research study, I used multiple regression analysis. According to Cooper & Schindler (2008), the processing of taking the one value of independent variable to estimate the value of the dependent variable is called simple prediction. But when more than one value of the independent is used to estimate the dependent value this process is called regression analysis. Multiple regression analysis is a statistical method for establishing an equation that allows a depndent variable to be estimated from two or more explanatory variables. (Morse, 1993, P.723)

The dependent variable is shown as y and the independent variables are shown as xi in the multiple regression equation. The model is represented by the following equations. y = 0 + 1x1 + 2x2 + ....+ kxk + where y is the dependent variable, x1, x2... xk are the independent variables, 0, 1, .... k are the coefficients and is the error variable. The independent variables may actually be functions of other variables. (Keller & Warrack, 2000, P.680)

In my research methodology, I used market-to-book value (shareholders wealth) as the dependent value and took four variables (net margin ratio, dividend payout ratio, leverage ratio and return on assets) as the independent variables.

23 -

Table 3.1: (Symbols used in Multiple Regression Equation) Symbols used in Multiple Regression Equation Coefficient Symbols Variable Name of the Dependent/Independent Variable Y 1 2 3 4 x1 x2 x3 x4 Dependent Independent Independent Independent Independent Market-to-book value Dividend Payout Ratio Net Margin Ratio Leverage Ratio Return on Assets Ratio

In my research method, I used the following equations by using the above defined symbols:

y = 0 + 1x1 + 2x2 + 3x3+ 4x4

In calculating the multiple regression equation, I included the constant. I am using this statistical technique to find the relationship between the dividend policy and the shareholders wealth. Then I compared this relationship on the data of the banks of the both countries to get the result. To calculate the multiple regression equation of the
dependent variable at a particular year (t), I used the data of the previous years (t-1) of all the

independent variables. In my analysis of estimating the value of the dependent variable (i.e. market to book value) from the each year 2003 to 2007, I used the data of all the independent variables from the year 2002 to the year 2006 respectively. That is for the market to book value of the year 2003; I used the data of the year 2002. Similarly for the shareholders wealth of the year 2004, 2005, 2006 and 2007 I used the data of the year 2003, 2004, 2005 and 2006 respectively.

As the year 2007 was the year of the credit crunch as discussed in section 2.11. So while calculating the multiple regressions, I did the calculations from the year 2003 -2007 and

24 -

showed the results in table 4.6 and then again did all the calculations from the year 2003 2006 (i.e. excluding the year 2007) and showed the results in table 4.7. The table 4.7 shows the results excluding the data of the year 2007 because of the credit crunch effect in both countries.

In the analysis of multiple regression equation, I used the dummy variables for UK and the USA banks. I used 0 for all the UK banks and 1 for all the USA banks as shown in the table at the end of the research.

As discussed in the last section of chapter 2, that in the year 2007 all the financial institutions and banks were in a financial distress in UK as well as in the USA so in the multiple regression analysis of the full sample, I analyzed the multiple regression from the year 2003 2007 and then again analyzed the multiple regression from the year 2003 2006 i.e. by excluding the year 2007.

In my research, first of all I did univariate analysis and then I did multivariate analysis. The reason to do the univariate analysis first is to know the actual understanding and the relationship between each independent variable with the dependent variable. In doing such a way, we are able to clearly analyse the relationship of each individual independent variable with the dependent variable. After analysing the univariate analysis I did the multivariable analysis. In multivariate analysis, I did the calculations to find the relation between all the independent variables and the dependent variable.

3.4 Design the research method: I divided this section into three sections. In section 1, I explained the hypothesis of my research study. In section 2, I explained, how did I select the data and sample for my research study and in the section 3, I explained the proxies which I used in the hypothetical determinants.

25 -

3.4.1 Hypothesis for the Research: The hypothesis for the my research study is to find the differences of the dividend policies of UK and the USA banks from the shareholders point of view during the period 2003 2007. Whether the dividend policies of the UK banks are more attractive to the shareholders than the USA banks? In simple words, whether the shareholders wealth of UK banks shareholders is more dependent on the dividend policy than the dividend policy of the USA banks? The shareholders are interested in the return on their investment. And the return on their investment is directly related with the dividend payout ratio of the banks. So from the shareholders point of view, the shareholders will seek which countrys banks have more dividend payout ratio than the other countrys bank.

3.4.2 Sample for the Research: To compare the dividend policy of the banks of UK and the USA, I collected the data of 15 banks of the USA and 11 banks of UK. The names of the banks are shown in the Table 3.2 Table 3.2 (Names of the Banks used in research study) UK Banks USA Banks Allied Irish Bank Bank of America Alliance & Leicester Bank of the West Bank of Ireland Branch Banking & Trust Company Barclays Comerica Bank Bradford & Bingley Countrywide Bank HBOS Fifth Third Bank HSBC J.P Morgan Bank Lloyds TSB PNC Northern Rock Regions Bank Royal Bank of Scotland Sun Trust Bank Standard Chartered The Bank of New York U.S Bank Union Bank of California Wachovia Bank Washington Mutual Incorporated

26 -

Source: Wikipedia (2008) (http://en.wikipedia.org/wiki/List_of_banks#Major_banks_12) The New York Job Source (2008) (http://nyjobsource.com/banks.html)

While selecting the banks of the two countries, I made sure that they were operating during my research period (i.e. from the year 2003 to the year 2007). I collected all the data of all the banks from DataStream, Thomson ONE banker and some data I collected from the annual reports of the banks available on their official websites.

My data is consists of 6 years time period (from 2002 2007). I collected the data of the independent variables from the year 2002 to the year 2006 and collected the data of dependent variable (i.e. market-to-book value ratio) from the year 2003 to the year 2007 as I explained in section 3.3.

As the title of my research study covers the year 2007, so I did the calculations by including the year 2007 as well as by excluding the data of the year 2007 to see the effect of the credit crunch on the dividend policy of the banks of both countries as well as on the shareholders wealth.

3.4.3 Proxies for the hypothetical determinants: There may be a numerous determinants which may affect the shareholders wealth. But in my research study, I am discussing only four independent variables. In my research study, I measured profitability in two ways i.e. return on asset ratio and the net margin ratio. The names, definitions, mathematical formulas and the brief description of each independent variable are explained below.

Dividend payout ratio: Dividend payout ratio is the reflection of the dividend policy of

27 -

any companay. Dividend payout ratio is defined as the annual dividend amount declared by the company divided by the annual net income.Mathematically, it is denoted as follows Dividend Payout Ratio = Annual dividend Net Income (Porter & Norton, 2004)

Higher the dividend payout ratio indicates that the business is high-cash-dividend and has no long term plans for expansion and major change in the business. Similarly, the lower the dividend payout ratio indicates that the business is low-cash-dividend and has long term plans for expansion or development in the business. Mostly shareholders prefer high dividend payout ratio.

Net Profit Margin: In the research of Fama & Babiak (1968), they used profitability as the independent variable to see the effect on the dependent variable i.e the dividend policy. The net margin ratio is defined as the percentage of net earnings to net sales. This figure shows that how much is the proportion of net earnings in the net sales. Mathematically net margin is defined as Net Margin = Net Earnings ( X 100) Net Sales (Sutton, 2000)

If the business A has more net margin ratio than the business B then it means that the business A has more profitability than the business B and the business A has more financial strength to pay dividend to its shareholders than the business B. Return on Assets: According to the research of Yermack (1996), he used return on assets as an independent variable to see the effect on the dependent variable (market-tobook value). Return on assets ratio is defined as the measure of the success of a company in earning a return for all the providers of capital. Mathematically, return on assets is the

28 -

ratio of net income and interest expense divided by the average total assets and mathematically it is denoted as Return on Assets = Net Income + Interest Expense, Net of Tax Average Total Assets (Porter & Norton, 2007) If the business A has more return on assets than the business B then it means that the business A is more efficient in utilizing its resources than the business B.

Leverage Ratio: In the research of Cho (1998), he used leverage ratio as an independent variable, in his multiple regression equation, to find the effect on the dependent variable i.e tobin q ratio. Leverage Ratio is the proportion of the loan to the total of share capital and the reserves. Mathematically, leverage ratio is denoted as Leverage Ratio = Loans Share Capital & Reserves (Marriott & Simon, 1990)
.

The more leverage ratio means that the business is using more loans in its business than the share capital. Taking loans for running the business is an expensive way of running the business than to arrange the money from issuing the share capital. The more leverage ratio means that the company is utilizing more money of debtors than the shareholders in the business.

Although Market-to-book value is not the determinants of the hypothesis yet it is important to know about the market-to-book value to properly understand this research study. Market-to-book value ratio explains the amount that shareholders are ready to pay for the every value of the businesss net assets. Mathematically, it is the ratio of current market price of common stock and the book value per share and it is mathematically denoted as:

29 -

Market-to-book value = current market price of common stock Book Value per share (Knapp, 1996)

The table on the next page shows the mean, median, standard deviation and the correlation of the independent variable with the market-to-book value for the full sample from the year 2003 - 2007. Table 3.3 (Mean Median, Standard Deviation and Correlation with market-to-book value of all the independent variables) Independent Mean Median Standard Correlation Variable Deviation with Marketto-book value Dividend Payout Ratio Return on Assets Ratio Net Margin Ratio Leverage Ratio 0.9092 0.9206 0.0896 -0.63634 0.1741 0.1483 0.2994 0.01610 0.3 0.01465 0.6415 -0.19579 0.4251 0.4315 0.1718 0.89949

30 -

The table 3.2 shows that the values of the mean and the median of the dividend payout ratio (independent variable) of the full sample are 0.4251 and 0.4315 respectively. These values of the mean and the median are enough close to each other to have an idea for the average. The standard deviation of the dividend payout ratio is 0.1718 which is not so big figure and shows that the range of data or the data does not deviate more than 17% from its mean/median. And the correlation of the dividend payout ratio with the dependent variable (market-to-book value ratio) is 0.89949. This shows that it is highly correlated with the share holders wealth. The change (increase or decrease) in dividend payout ratio will affect almost 90% directly to the change in the value of share holders wealth. In table 3.3 the correlation coefficient between dividend payout ratio and the market-tobook value is the highest one among the other independent variables.

The values of the mean and the median of the return on asset ratio of the full sample are 0.3 and 0.01465 respectively. There is a big difference of the values of the median and mean of return on assets ratio due to the extreme values of the four banks: Royal Bank of Scotland (UK bank), PNC (USA bank), Fifth Third Bank (USA bank) and U.S bank (USA bank). As a result the standard deviation of the return on asset ratio is 0.6415 which is very high in value. This shows that 64.15% of the data deviates from its average. The correlation of the return of the assets ratio, the independent variable, with the market-to-book value ratio, the dependent variable, is -0.19579. This figure shows that there is a negative relationship between return on asset ratio and the market to book value ratio for the full sample. Its mean that if the return on assets increases then the shareholders wealth decreases. Similarly, if the return on assets decreases then the shareholders wealth increases. The magnitude of the correlation shows that the change in return on asset will affect almost 20% on the shareholders wealth.

The values of the mean and the median of the net margin ratio of the full data are 0.1741 and 0.1483 respectively. There is a small difference between the values of the mean and median. The standard deviation of the net margin ratio is 0.2994. This shows that almost

31 -

30% of the data deviates from its mean. The correlation of the net margin, the independent variable, with the market-to-book value ratio, the dependent variable, is 0.01610. This figure is very small as it shows that the effect of the net margin ratio on the shareholders wealth is very small. This correlation between the dependent and independent variable of the full sample is the least one among all the independent variables.

The values of the mean and the median of the leverage ratio of the full data are 0.9092 and 0.9206 respectively. There is a very small difference between the values of the mean and median of the leverage ratio of the full sample. As a result the standard deviation of the leverage ratio is 0.0896. This shows that almost 9% of the data deviates from its average. The correlation of the net margin, the independent variable, with the market-tobook value ratio, the dependent variable, is -0.63634. This figure has negative sign which shows that increase in the leverage ratio will decrease the shareholders wealth and the decrease in the leverage ratio will increase the shareholders wealth. From the shareholders point of view, the shareholder should invest in that country where the banks have low leverage ratio. The magnitude of the correlation of the leverage ratio has a considerable value. It shows that every change (increase or decrease) in the leverage ratio will bring a change of 63% in the shareholders wealth.

32 -

Chapter 4: Results
In this chapter, I explained all the results of the multiple regression analysis so as to analyse and compare the relationship between the shareholders wealth and the dividend policy of UK and the USA banks.

The table - 4.1 shows the result from the full data of the full sample. The table 4.2 and table 4.3 show the result of the data of separately UK banks and the USA banks respectively. The statistical techniques which I used in all the three tables are standard error, p-value, t-statistics and the coefficient correlation. In all the three tables, i.e. table 4.1, table 4.2 and table 4.3 the first and second row of first column of each independent variable show the values of standard error and t-statistics respectively. While the first and second row of the second column of each independent variable show the value of p and the coefficient correlation respectively. The dependent variable in all the three tables is market-to-book value ratio. There are four independent variables used in the multiple regression equations which are the dividend payout ratio, net margin ratio, return on assets ratio, and the leverage ratio. The table 4.1, table 4.2 and the table 4.3 show the results of all the statistical techniques of each separate independent variable with the dependent variable (market-to-book value ratio) that is the relationship of univariate. The data for this research study is consisting of 11 UK banks and 15 USA banks. The name of the banks of each country whose data is used in this research study is shown in table 3.2 in chapter 3.

33 -

Table: 4.1 (Univariate Analysis) Dependent Variable: Market to Book value (Full Sample) Independent Variables Standard Error (t- Statistics) Dividend Payout Ratio 0.35433 (2.53851) Net Margin 0.2083 (0.07728) Return on Assets 0.09568 (-2.04623) Leverage Ratio 0.693634 (-0.91741) N 130 p-value (Coefficient) 0.0123 (0.89949) 0.9385 (0.016098) 0.042782 (-.195791) 0.360652 (-.636349)

Table 4.2 (Univariate Analysis)

Dependent Variable: Market to Book value (UK) Independent Variable Standard Error (t- Statistics) Dividend Payout Ratio 0.41515 (3.3563) Net Margin Ratio 1.8798 (1.540) Return on Assets Ratio 0.2181 (-1.475) Leverage Ratio 0.6785 p-value (Coefficient) 0.00416 (0.159727) 0.1292 (0.0248) 0.146 (0.02131) 0.12777

34 -

(-1.5472) N 55

(0.02516)

Table 4.3 (Univariate Analysis) Dependent Variable: Market to Book value (USA) Independent Variables Standard Error (t- Statistics) Dividend Payout Ratio 0.46227 (0.39189) Net Margin Ratio 0.1816 (0.533) Return on Assets Ratio 0.0928 (-0.8344) Leverage Ratio 1.569 (2.080) N 4.1 How to read the indicators: In the above table, N shows the numbers of observations of UKs and USAs banks. The total numbers of UKs banks are 11 and the time period consists of 5 years i.e. from the year 2003 to the year 2007. So the total numbers of observations of UK are 55 and N for UK is 55 as shown in the table 4.2. Similarly, the total numbers of banks chosen from the USA are 15 and the time period is also of 5 years i.e. from the year 2003 to the year 2007. So the total numbers of observations of USA are 75 and N for USA is 75 as shown in the table 4.3. By combining the N of both countries (UK and the USA) the total number of observations of the full sample is 130 as shown in the table 4.1. To find the multiple regression equation of the year 2003, I took the data of the year 2002. 75 p-value (Coefficient) 0.6963 (-0.01157) 0.5956 (-0.009768) 0.406 (-0.004121) 0.04097 (0.0430)

35 -

Similarly to find the multiple regression equation of the year 2004, I took the data of the year 2003 and so on (as I explained in chapter 3). By doing this the total number of observations would not change and it will remain the same i.e. 55, 75 and 130 for UK, the USA and for the full sample respectively.

Regression analysis is a statistical technique concerned with finding a mathematical formula or model that relates the values of one variable to those of the other (McGhee, 1985). The adjusted R2 helps us to measure the strength of the linear relationship, particularly when we required comparing several different models. The statistical technique which performs this function is called coefficient of determination and is denoted as R2 (Keller & Warrack, 2000). The positive sign of R2 or the positive correlation shows that the value of dependent variable will increase or decrease with the simultaneously increase or decrease in the value of the independent variable respectively. On the other hand, the negative sign of R2 shows that the value of the dependent variable will increase or decrease with the simultaneously decrease or increase in the value of independent variable respectively. The value of R2 is always between -1 to +1 (Thomas, 1997). If the value of R2 is zero then it shows that there is no relation between the dependent variable and the independent variable.

A p-value is the probability of getting a value of the test statistic which is at least as contradictory to the null hypothesis, as and supportive of the alternative hypothesis, as the one which is computed from the data (Morse, 1993). The data would be at 1% significant if the value of p is 0.005.

T-statistic compares the difference between the sample means against the null hypothesis difference and divides that by the pooled standard error (Smithson, 2000). The data would be at 1% significant if the value of the t-statistics is more than 2.3732 and the data

36 -

would be at 5% significant if the value of the t-statistics is more than 1.6634 but less than 2.3732.

Significant level is the probability we give to an outcome below which we consider it unlikely. (Lee & Lings, 2008, P.305)

Independent Variables are variables which give information on the behaviour of the dependent variables which are incorporated into the model as explanatory variables. These variables are called independent variables (Rawlings, 1988). While a dependent variable is the variable predicted or caused by independent variable(s) (Smithson, 2000, P.88).

4.2 Results of the hypothesised regression model: 4.2.1 Discussion of the univariate results from the full sample: The table 4.1 shows the results of all the statistical techniques (which are used in this research) for each individual independent variables with the dependent variable (marketto-book value ratio) for the full sample of the research study i.e. by combining the data of UK banks and the USA banks. The table 4.2 shows the results of all the statistical techniques (which are used in this research) for each individual independent variables with the dependent variable only for UK banks. On the other hand, the table 4.3 shows the results of all the statistical techniques (which are used in this research) for each individual independent variables with the dependent variable only for the USA banks.

The coefficient between the dividend payout ratio (independent variable) and the market-

37 -

to-book value (dependent variable) for the full sample is 0.89949, which is the highest coefficient between the dividend payout ratio and the market to book value among all the other independent variables as shown in table 4.1 which shows that the most effective independent variable among all the independent variables on the dependent variable is the dividend payout ratio for the full sample. In simple words, the dividend payout ratio has more impact on the shareholders wealth than net margin ratio, leverage ratio and return on assets for the full sample. The other independent variables have very small values of coefficient so are not as important for the shareholders point of view as of the dividend payout ratio which may affect their wealth.

Similarly, the value of the t-statistics of the dividend payout ratio of the full sample is the highest among the others independent variables. The value of the t-statistics of the dividend payout ratio is 2.53851 which is more than 2.3721 and shows that the level of significant of the data is 1% and is highly reliable than the t-statistics of the other independent variables. The t-statistics values of the full sample of the leverage ratio and the return on assets are negative. In the same way, the p-value of the dividend payout ratio is just 0.0123, which is the least one among the all other independent variables. This shows that the data for the dividend payout ratio is the most reliable data among the all the other independent variables.

So from all the above analysis of each individual independents and the dependent variable, it is clear that the dividend payout ratio has the most significant impact on the shareholders wealth than any other independent variables and the data of the dividend payout ratio is the most significant than any other independent variables.

38 -

The table 4.2 also shows that the most magnitude coefficient among all the independent variables with the dependent variable is the dividend payout ratio. So from the shareholders point of view, the shareholder should consider this particular independent variable i.e. dividend payout ratio in depth before investing in UK banks as it has the most significant impact on the shareholders wealth. Its p-value is 0.00416 which is lower than 0.005 and indicates that the significant level of the data is 1% and can be reliable. Similarly, the value of the t-statistics of the data is 3.3563 which is more than 2.3721. It again indicates that the significant level is less than 1% and the data is reliable. So from the shareholders point of view, the shareholder should consider the dividend payout ratio of UK banks carefully before investing in because the dividend payout ratio has the most powerful impact on the shareholders wealth among all the independent variables and it is the most reliable data.

On the other hand, the table 4.3 shows that the most effective coefficient independent variable with the dependent variable is the leverage ratio and its value is 0.0430. In USA banks, the most important and the effective coefficient of the independent variable among all the others independent variable is the leverage ratio. So from the shareholders point of view, the shareholders should consider the leverage ratio in depth before investing in the USA banks as it has the most significant impact on the shareholders wealth. The p-value of the leverage ratio among all the other independent variables is the least one which shows that it is the most reliable data among all the other independent variables. Similarly, the t-statistics of the leverage ratio among all the other independent variables is the least one which shows that is it the most reliable data among all the other independent variables. So from the shareholders point of view, the shareholder should consider the leverage ratio of the USA banks carefully not the dividend payout ratio before investing in because the leverage ratio has the most powerful impact on the shareholders wealth comparative to the other independent variables.

39 -

4.2.2 Credit Crunch Effect for Univariate Analysis: The table 4.4 and table 4.5 show the results of univariate analysis of the period 2003 2006 (i.e. excluding the period of credit crunch) for the UK and the USA banks respectively. Table 4.4 (Univariate Analysis: 2003 - 2006) Dependent Variable: Market to Book value (UK) Independent Variables Standard Error (t- Statistics) Dividend Payout Ratio 0.3803 (3.833) Net Margin Ratio 2.066 (2.157) Return on Assets Ratio 0.2264 (-1.024) Leverage Ratio 0.712542 (-0.89122) 44 p-value (Coefficient) 0.000417 (1.4579) 0.03675 (4.458) 0.311281 (-0.232) 0.377889 -0.6350)

40 -

Table 4.5 (Univariate Analysis: 2003 - 2006) Dependent Variable: Market to Book value (USA) Independent Variables Standard Error (t- Statistics) Dividend Payout Ratio 0.54 (0.5802) Net Margin Ratio 0.18914 (0.1608) Return on Assets Ratio 0.1095 (1.14488) Leverage Ratio 1.767 (2.1) N 60 p-value (Coefficient) 0.564 (0.3133) 0.8727 (0.0304) 0.25693 (-0.1253) 0.039677 (3.719)

From the table 4.4 it is clear that by excluding the data of the year 2007 from the sample the coefficient of net margin ratio is the highest among the other independent variables. The t-statistics of the net margin ratio of UK banks is 2.157 which show that the data is relevant and highly significant. On the other hand, by excluding the data of the year 2007 from the sample of the USA banks leverage ratio has the highest coefficient among all the other independent variables as shown in table 4.5. The p-value and the value of t-statistics also indicate that the data is reliable and at significant level.

41 -

4.3 Discussion of the multivariate results from the full sample:

Table: 4.6 (multivariate analysis for 2003 - 2007) Dependent Variable: Market to Book value (Full Sample) Independent Variables Standard Error (t- Statistics) Dividend Payout Ratio 0.31449 (2.806) Return on Assets Ratio 0.085738 (-1.3809) Net Margin Ratio -0.181666 (-0.815217) Leverage Ratio 0.6107 (-0.63277) N Adjusted R2 130 0.25227 p-value (Coefficient) 0.0058 (0.882647) 0.16978 (-0.118399) 0.41651 (0.148097) 0.5285 (-0.38643)

Table: 4.7 (Excluding the data of 2007 i.e. for 2003 - 2006) Dependent Variable: Market to Book value (Full Sample) Independent Variables Standard Error (t- Statistics) Dividend Payout Ratio 0.33165 (3.0372) Return on Assets Ratio 0.09512 (-1.71128) Net Margin Ratio 0.17697 (0.43304) Leverage Ratio 0.668714 p-value (Coefficient) 0.00306 (1.00728) 0.09019 (-0.16277) 0.66594 (0.07663) 0.84191

42 -

(0.19998) N Adjusted R2 104 0.296343

(0.13373)

Table: 4.8 (multivariate analysis for 2003 - 2007) Dependent Variable: Market to Book value (UK) Independent Variables Standard Error (t- Statistics) Dividend Payout Ratio 0.408489 (3.16757) Return on Assets Ratio 0.20225 (-1.17819) Net Margin Ratio 1.7303 (1.13874) Leverage Ratio 0.6285 (-1.27988) N Adjusted R2 55 0.260626 p-value (Coefficient) 0.00262 (1.293988) 0.244298 (-0.23828) 0.17147 (2.40066) 0.20649 (-0.8044)

Table: 4.9 (multivariate analysis for 2003 - 2007) Dependent Variable: Market to Book value (USA) Independent Variables Standard Error (t- Statistics) Dividend Payout Ratio 0.46886 (-0.0715069) Return on Assets Ratio 0.0934476 (-1.45936) p-value (Coefficient) 0.943198 (-0.033527) 0.148938 (-0.13637)

43 -

Net Margin Ratio

0.182386 (1.15704)

0.251188 (0.211028) 0.013998 (4.3360)

Leverage Ratio

1.72025 (2.5206)

75

Adjusted R2 0.033287 The table 4.4 shows the results of the relationship of all the independent variables with the dependent variable (multivariable analysis) for 2003 - 2007. From the table 4.4, it is clear that the coefficient correlation of the dividend payout ratio is the highest among the other independent variables. It shows that the dividend payout ratio is more correlated with any other independent variable to the shareholders wealth (market-to-book value) and it has more impact on the shareholders wealth than any other independent variable. So from the shareholders point of view, it is more important to consider the dividend payout ratio before investing in the business. These both independent variables (i.e. Dividend payout ratio and the net margin ratio) are positive in nature and show that the shareholders wealth will increase with the increment in both the dividend payout ratio and the net margin ratio. Similarly, the shareholders wealth will decrease with the decrease in the dividend payout ratio and decrease in the net margin. But the dividend payout ratio is more correlated with shareholders wealth than the net margin. The coefficient correlation of other two independent variables (i.e. leverage ratio and return on assets) are in negative and has less effect on the shareholders wealth as compared to dividend payout ratio.

The value of the t-statistics of the dividend payout ratio of the full sample is 2.806. The value of the dividend payout ratio is more than 2.3721 which indicates that the data is at 1% significant level and the data for the dividend payout ratio is reliable. From the shareholders point of view the data of the dividend payout ratio is more significant than the data of the net margin.

The value of the p-test of the dividend payout ratio is 0.0058 which is almost equal to

44 -

0.005. If the value of the p- test is equal to 0.005, it shows that the data is at 1% significant level and reliable. So the data of the dividend payout ratio is the most reliable from the full sample. The total numbers of observations in the full sample are 130. The adjusted R2 of the multiple regression equation of the full sample is 0.25227. The value of adjusted R2 is small because of the multiple regression equation. In this research study, I used four independent variables. Some independent variables may have positive relation and some may have negative relation with the dependent variables. That is why the value of the adjusted R2 is small. The value of coefficient of some independent variables may be larger or smaller than the coefficient of the other independent variables.

4.3.1 Credit Crunch Effect on Multivariate Analysis: As there was lots of financial distress in the year 2007 and this financial distress not only affected the USAs economy but also the UKs economy. A large numbers of banks were in financial pressure during this year. The year of 2007 is also known as credit crunch year. As my research study covers the year 2007 so it is essential here to discuss and analyse the data without the year 2007 for the proper understanding and analysing the impact of the dividend policy on the shareholders wealth.

The table 4.7 shows the results of the full sample data from the year 2003 2006 i.e. by excluding the data of the year 2007.

The table 4.7 shows that the coefficient correlation of the dividend payout ratio is the highest among all the other independent variables. It shows that the dividend payout ratio is more correlated with any other independent variable to the shareholders wealth (market-to-book value). The magnitude of the coefficient of dividend payout ratio is 1.00728 which shows that the change in the dividend payout ratio will bring almost the same changes in the shareholders wealth. While this coefficient decreases to 0.882674 if

45 -

we include the data of the year 2007 in the calculations. So from the shareholders point of view, it is more important to consider the dividend payout ratio before the year 2007 as it was directly related with the shareholders wealth and just because of credit crunch it decreased to 0.882674.

The p - value of the dividend payout ratio is also improved from 0.0058 to 0.00306 by excluding the data of the year 2007, which shows that now the data is more significant than by including the year 2007. In simple words by including the credit crunch year the level of significant decreases. Similarly, the t-statistics value of the dividend payout ratio has also improved from 2.806 to 3.0372. This also indicates that now the data is again more significant than by excluding the data of 2007. Due to the effect of the credit crunch the reliability and significant level of the data decreased in 2007.

The other major and notable change by excluding the data of the year 2007 from the full sample is the change of the value of coefficient of leverage ratio. By excluding the data of the year 2007, the value of the leverage ratio changed from -0.38643 to 0.13373. So the credit crunch not only affected the magnitude of the leverage ratio but it also changed the relationship between the shareholders wealth and the leverage ratio. By excluding the data of the year 2007 in full sample, increase in leverage ratio also increases the shareholders wealth. Similarly, by decreasing the value of the leverage ratio the shareholders wealth also decreases. On the other hand by including the data of the year 2007 the increasing the value of leverage ratio decreases the value of the shareholders wealth and by decreasing the leverage ratio the value of shareholders wealth increases. The value of the adjusted R2 of the multiple regression equation also increases from the 0.25227 to 0.296343 of full sample from by excluding the data of the year credit crunch year.

46 -

4.3.2 Discussion and comparisons of the multivariate results of UK and the USA banks dividend policy and shareholders wealth: From all the information and explanation from the table 4.6 of full sample, now we are in a position to take rational decision as a shareholder whether to invest in the USA banks or in UK banks. To take a rational decision either to invest in the USA or in UKs banks we would use table 4.8 and table 4.9. Table 4.6 shows the results of UK banks while the table 4.7 shows the result of the USA banks. To make a decision for investment the shareholders have to compare the results of both countries individually which are shown in table 4.8 and table 4.9.

The coefficient of dividend payout ratio of UK banks and the USA banks are 1.2939 and -0.033527 respectively. This shows that there is a high relationship in UK banks dividend payout ratio and the shareholders wealth. Even the dividend payout ratio of UK banks has positive effect of change more than 100% to its shareholders wealth. On the other hand, the dividend payout ratio of USA banks has not only very little impact or correlation but also in negative. It clearly shows that there is almost no impact on the shareholders wealth in the USA due to the bank dividend policy. So from the shareholders point of view, if the shareholder is investing in UK banks then it is valuable for him/her to see the dividend payout ratio of UK banks in depth and while investing in USA banks there is no point to consider the dividend payout ratio of USA banks as it has very nominal negative effect on the shareholders wealth.

But the next question is that how much the data of dividend payout ratio of both banks are reliable or significant. For this we have two statistical tests i.e. t-statistics and pvalue.

The t-statistics values of the dividend payout ratio of table 4.8 and table 4.9 show the figures of 3.16757 and -0.071507 respectively. The t-statistics value of table 4.8 is more than 2.3721 which shows that the data of UK banks is at 1% significant level and

47 -

reliable. On the other hand, the t-statistics value of table 4.9 of dividend payout ratio is 0.0715 which indicates that the data is not a reliable.

Similarly, the p-values of the dividend payout ratio of the table 4.8 and the table 4.9 are 0.00262 and 0.943198 respectively. The p-value of table 4.8 is less than 0.005 which shows that the data of UK banks is at 1% significant level and the more reliable. On the other hand, the p-value of the table 4.9 of dividend payout ratio is 0.943198 which indicates that it is not a reliable data.

The standard error of the table 4.8 is also less than the table 4.9 and it also shows that the data of dividend payout ratio of table 4.8 is more significant than the data of the table 4.9.

So from the above analysis and comparison of the dividend payout ratio of the both banks separately, it is clear that the shareholders should invest in UKs banks instead of USA banks as the dividend policy of the UK banks has more impact on the shareholders wealth than the USA banks as well as the data of UK banks is also more reliable than the USA banks.

48 -

Chapter 5 (Summary & Conclusion) The purpose of this dissertation was to investigate and to compare the dividend policy of UK and the USA banks from the shareholders point of view from the year 2003 - 2007. To analyse the dividend policy in detail, I considered many theories, policies and the models in the research study which may affect the shareholders wealth. In the research study, I used four independent variables to find the regression relationship between the shareholders wealth and the dividend policy of the banks of both countries (i.e. UK and the USA).

In my research study, I had some limitations. Like due to less time I was not able to collect the large number of banks in UK and the USA and the result may be different. Similarly, there are many factors which may affect the shareholders wealth but I considered only four in my research study

I used multiple regression analysis to analyse the data and finding the relationship between the dividend policy and the shareholders wealth of UK and the USA banks. There may be many more factors which may be impacted on the shareholders wealth including the dividend policy (dividend payout ratio).

From the results of the research, it is clear that the dividend payout ratio of the UK banks have more impact on shareholders wealth than in the USA banks. So from the shareholders point of view while investing in UK, it is compulsory for the shareholders to deeply observe the trend of the dividend payout ratio of UK banks.

As we discussed that the shareholders wealth is also. From the shareholders point of view, it is important to consider the net margin in depth while investing in UK banks

49 -

because in UK there is more regression between the shareholders wealth and the net margin than in the USA. In the end, the multiple regression equation of UK banks has more value of adjusted R2 than the USA banks. So by considering these four independent variables this multiple regression equation shows that there is more relationship between the dividend policy and the shareholders wealth in UK banks than the USA banks. (Words Count: 13,927)

50 -

References: Arnold, Glen. (2005) Corporate Financial Management. 3 rd Edition USA. Publisher: FT Prentice Hall. Atrill, Peter. (2003) Financial Management for non-specialists. 3 rd Edition London: Publisher: FT Prentice Hall. Arnold, Markus C. and Gillenkirch, Robert M., (February 2002) Stock Options as Incentive Contracts and Dividend Policy. University of Frankfurt Finance & Accounting Working Paper Series. Available at SSRN: http://ssrn.com/abstract=303242 or DOI: 10.2139/ssrn.10.2139/ssrn.303242 [Online]. (Accessed: 12 June 2008) Baker, H. K., Veit, E. T., & Powell, G. E. (2001). Factors Influencing Dividend Policy Decisions of Nasdaq Firms. The Financial Review[Online], 38, 19 - 38. Available at SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=311269[Online]. (Accessed: 18 June 2008) Bank of the West (2007), 2006 Annual report Financial Statements Available at: https://www.bankofthewest.com/BOW/assets/vcmStaticContent/BOW%20Internet%20C ontents/About%20Us/Documents/Annual%20ReportFinancial%20Stmt/2006_Annual_Report.pdf [Online] (Accessed: 20 August 2008)

Bank of the West (2006), 2005 Annual report Financial Statements Available at: https://www.bankofthewest.com/BOW/assets/vcmStaticContent/BOW%20Internet%20C ontents/Development/attachments/pdf/2005_Annual_Report.pdf [Online] (Accessed: 20 July 2008)

Bank of the West (2005), 2004 Annual report Financial Statements Available at https://www.bankofthewest.com/BOW/assets/vcmStaticContent/BOW%20Internet%20C ontents/Development/attachments/pdf/2004_BOW_Annual_Report.pdf [Online] (Accessed: 20 July 2008)

Bank of the West (2004), 2003 Annual report Financial Statements Available at https://www.bankofthewest.com/BOW/assets/vcmStaticContent/attachments/pdf/2003_A nnualReport.pdf [Online] (Accessed: 20 July 2008)

51 -

Bank of the West (2003), 2002 Annual report Financial Statements Available at: https://www.bankofthewest.com/BOW/assets/vcmStaticContent/attachments/pdf/annualr eport_2002.pdf [Online] (Accessed: 20 July 2008)

Bhattacharyya.N, Winnipeg. Manitoba, (August 2003) Good Managers Work More and Pay Less Dividends- A Model of Dividend Policy. Available at SSRN: http://ssrn.com/abstract=114608 or DOI: 10.2139/ssrn.10.2139/ssrn.114608 [Online] (Accessed: 28 June 2008)

Blair, M. M. (2003, January) Shareholder Value, Corporate Governance and Corporate Performance. Corporate Governance and Capital Flows in A Global Economy , 53 - 82. Available at SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=334240 or DOI: 10.2139/ssrn.10.2139/ssrn.334240 [Online] (Accessed: 17 August 2008)

Brailsford, T. J., Oliver, B. R., & Pua, S. L. (2002) On The Relation Between Ownership Structure And Capital Structure. Accounting and Finance , 42, 1 - 26. Available at SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=318592 [Online] (Accessed:22 June 2008)

Bryman, A., & Bell, E. (2003) Business Research Methods. 1st Edition. New York, USA: Oxford University Press.

Brealey, R. A. & C.Myers, S. (2003) Principles of Corporate Finance. 7th Edition. New York, USA: McGraw-Hill Irwin.

Brigham, E. F., & Ehrhardt, M. C. (2005) Financial Management: Theory and Practice. 11th Edition. USA: Thomson South-Western.

Brigham, Eugene F., Gapenski .Louis C and Ehrhardt .Michael C. (1999) Financial Management Theory and Practice, 9 th Edition. USA: Publisher: George Provol Bessler .Wolfgang, Nohel .Tom (July 1999) Asymmetric Information, Dividend

52 -

Reductions, and Contagion Effects in Bank Stock Returns. Journal of Banking and Finance. Available at SSRN: http://ssrn.com/abstract=236034 or DOI: 10.2139/ssrn.10.2139/ssrn.236034 [Online] (Accessed: 24 May 2008) Burkart, Mike C., Panunzi, Fausto., & Sheleifer, A. (Februaary 2002). Family Firms. The Journal of Finance , LVIII (5), 2167 - 2201. NBER Working Paper No. W8776. Available at SSRN: http://ssrn.com/abstract=299820 [Online]. (Accessed: 6 May 2008)

C.Higgins, R. (1972). The Corporate Dividend-Saving Decision. The Journal of Financial and Quantitative Analysis , 7 (2), 1527 - 1541. Available at ProQuest: http://fq4dk7fa6s.search.serialssolutions.com/directLink?&atitle=THE%20CORPORAT E%20DIVIDEND%2DSAVING%20DECISION&author=HIGGINS%2C%20ROBERT %20C.&issn=00221090&title=Journal%20of%20Financial%20and%20Quantitative%20 Analysis&volume=7&issue=2&date=19720301&spage=1527&id=doi:&sid=ProQ_ss&g enre=article&lang=en [Online]. (Accessed: 17 July 2008)

Canina, L., Advani, R., Greenman, A., & Palimeri, I. (2001). Dividend Policy in the Lodging Industry. Journal of Hospitality & Tourism Research , 69 - 89.

Cho, M.-H. (1998). Ownership Structure, Investment, and the Corporate Value: An Empirical Analysis. Journal of Financial Economics , 47, 103 - 121. Available at ProQuest: http://fq4dk7fa6s.search.serialssolutions.com/directLink?&atitle=Ownership%20structur e%2C%20investment%2C%20and%20the%20corporate%20value%3A%20%20an%20e mpirical%20analysis&author=Myeong%2DHyeon%2C%20Cho&issn=0304405X&title= Journal%20of%20Financial%20Economics&volume=47&issue=1&date=19980101&spa ge=103&id=doi:&sid=ProQ_ss&genre=article&lang=en[Online]. (Accessed: 24 July 2008)

Cloyd, C. B., Robinson, J. R., & Weaver, C. D. (2005, May 25). Does Ownership Structure Affect Corporations Responses to Lower Dividend Tax Rates? An Analysis of Public and Private Banks. USA. Available at SSRN: http://ssrn.com/abstract=729865 or DOI: 10.2139/ssrn.10.2139/ssrn.729865 [Online] (Accessed: 2 June 2008)

Cooper, D. R. & Schindler, P. S. (2008) Business Research Methods. 10th Edition. New

53 -

York, USA: McGraw Hill Internatioanl Edition.

Osobov , Igor V. and Denis, David J (May 2007) Why Do Firms Pay Dividends? International Evidence on the Determinants of Dividend Policy Available at SSRN: http://ssrn.com/abstract=887643[Online]. (Accessed: 11 August 2008) Data Stream (Advance 4.0). [Online] Kingston University Library. London.

DeAngelo. Harry, DeAngelo. Linda, Stulz. Rene M (May 2005) Dividend Policy and the Earned/Contributed Capital Mix: A Test of the Lifecycle Theory Available at SSRN: http://ssrn.com/abstract=766086[Online] (Accessed: 15 July 2008) Deloitte & Touche LLP. (February 2008) Fifth Third Bancorp Annual Report 2007 Available at http://library.corporateir.net/library/72/727/72735/items/281703/annualreport_2007.pdf [Online] (Accessed: 8 July 2008)

Deloitte & Touche LLP (February 2007) Fifth Third Bancorp Annual Report 2006 Available at http://library.corporate-ir.net/library/72/727/72735/items/272661/2006ar.pdf [Online] (Accessed: 8 June 2008)

Deloitte & Touche LLP (February 2006) Fifth Third Bancorp Annual Report 2005 Available at http://library.corporate-ir.net/library/72/727/72735/items/272669/2005ar.pdf [Online] (Accessed: 8 June 2008)

Deloitte & Touche LLP (January 2005) Fifth Third Bancorp Annual Report 2004 Available at http://library.corporate-ir.net/library/72/727/72735/items/272670/2004ar.pdf [Online] (Accessed: 8 June 2008)

Deloitte & Touche LLP (January 2004) Fifth Third Bancorp Annual Report 2003 Available at http://library.corporateir.net/library/72/727/72735/items/272672/2003arPart2.pdf [Online] (Accessed: 8 June 2008)

54 -

Deloitte & Touche LLP (January 2003) Fifth Third Bancorp Annual Report 2002 Available at http://library.corporate-ir.net/library/72/727/72735/items/272673/2002ar.pdf [Online] (Accessed: 8 June 2008)

Deloitte & Touche LLP (February 2008) Union Bank of California 2007 Annual Report. Available at https://www.snl.com/Cache/5935502.PDF?D=&O=PDF&IID=1022285&OSID=9&Y=& T=&FID=5935502 [Online] (Accessed: 8 September 2008)

Deloitte & Touche LLP (February 2007) Union Bank of California 2006 Annual Report .Available at https://www.snl.com/Cache/3665041.PDF?D=&O=PDF&IID=1022285&OSID=9&Y=& T=&FID=3665041[Online] (Accessed: 9 June 2008)

Deloitte & Touche LLP (February 2006) Union Bank of California 2005 Annual Report. Available at https://www.snl.com/Cache/2206546.PDF?D=&O=PDF&IID=1022285&OSID=9&Y=& T=&FID=2206546 [Online] (Accessed: 8 June 2008)

Deloitte & Touche LLP (February 2005) Union Bank of California 2004 Annual Report.Available at https://www.snl.com/Cache/1768087.PDF?D=&O=PDF&IID=1022285&OSID=9&Y=& T=&FID=1768087 [Online] (Accessed: 9 June 2008)

Deloitte & Touche LLP (February 2004) Union Bank of California 2003 Annual Report.Available at https://www.snl.com/Cache/1438382.PDF?D=&O=PDF&IID=1022285&OSID=9&Y=& T=&FID=1438382 [Online] (Accessed: 9 June 2008)

Deloitte & Touche LLP (February 2003) Union Bank of California 2002 Annual Report. Available at https://www.snl.com/Cache/1157466.PDF?D=&O=PDF&IID=1022285&OSID=9&Y=&

55 -

T=&FID=1157466 [Online] (Accessed: 9 June 2008)

Von Eije, J. Henk and, Megginson, William L., (December 2006), Dividend Policy In The European Union. Available at SSRN: http://ssrn.com/abstract=900749 [Online] (Accessed: 6 June 2008)

E.Copland, T., Weston, J. F. & Shastri, K. (2005) Financial Theory and Corporate Policy. 4th Edition. USA: Pearson Addison Wesley. Emery, D. R., & Finnerty, J. D. (1991) Principles of Finance With Corporate Applications. 1 st Edition. USA: West Publishing Company.

Emery, D. R., D. Finnerty, J., & Stowe, J. D. (2007) Corporate Financial Management. 3rd Edition. New Jersey: Pearson Prentice Hall.

Ernst & Young LLP (February 2008) US Bancorp 2007 Annual Report Available at http://library.corporateir.net/library/11/117/117565/items/281033/USBancorp_2007_Annual_Report.pdf [Online] (Accessed: 20 September08)

Ernst & Young (February 2007) 2006 Annual Report and Form 10-K Available at http://media.corporateir.net/media_files/irol/11/117565/reports/USBancorp2006AR_10K.pdf [Online] (Accessed: 9 July 2008)

Ernst & Young (February 2006) 2005 Annual Report and Form 10-K. Available at http://media.corporateir.net/media_files/irol/11/117565/pdf/USB_2005_Annual_Report.pdf [Online] (Accessed: 12 June 2008)

Ernst & Young (February 2005) 2004 Annual Report and Form 10-K. Available at http://media.corporate-

56 -

ir.net/media_files/irol/11/117565/pdf/USBancorpAnnualReport_2004.pdf (Accessed: 12 June 2008)

[Online]

Ernst & Young (February 2002) 2003 Annual Report and Form 10-K Available at http://media.corporateir.net/media_files/irol/11/117565/pdf/USBancorpAnnualReport_2003.pdf [Online] (Accessed: 27 June 2008)

Faccio, M., Lang, L. H., & Young, Leslie S.F. (2001, July 31). Dividend and Expropriation. American Economics Review , 1 - 45. Available at SSRN: http://ssrn.com/abstract=222428 or DOI: 10.2139/ssrn.10.2139/ssrn.222428 [Online] (Accessed: 2 July 2008) Fama, E. F., & Babiak, H. (1968). Dividend Policy: An Empirical Analysis. Journal of the American Statistical Association , 63 (324), 1132 - 1161. Available at http://www.jstor.org/stable/2285874 [Online] (Accessed: 15 April 2008)

Faulkender. Michael, Milbourn. Todd, Thakor. Anjan (March 2006) Does CorporatePerformance Determine Capital Structure and Dividend Policy? Available at SSRN: http://ssrn.com/abstract=686865[Online]. (Accessed: 20 July 2008)

Fuller. Kathleen, Goldstein. Michael (2003) Dividend Policy and Market Movements Available at: http://papers.ssrn.com/sol/papers.cfm?abstract_id=437700 [Online]. (Accessed:10 June 2008)

F.Brigham, E., & Houston, J. F. (2004) Fundamentals of Financial Management. 10th Edition. USA: Thomson South-Western.

Galai, D., & Schneller, M. I. (1978). Pricing of Warrants and the Value of the Firm. The Journal of Finance , 33 (5), 1333 - 1342. Available at: http://fq4dk7fa6s.search.serialssolutions.com/directLink?&atitle=Pricing%20of%20Warr ants%20and%20the%20Value%20of%20the%20Firm&author=Galai%2C%20Dan%3B %20Schneller%2C%20Meir%20I.&issn=00221082&title=The%20Journal%20of%20Fin ance&volume=33&issue=5&date=19781201&spage=1333&id=doi:&sid=ProQ_ss&genr

57 -

e=article&lang=en [Online] (Accessed: 20 March 2008)

Hall, D. J., & Brummer, P. L. (No Date). The Relationship between the Market Value of a Company And Internal Performance Measurements. Available at SSRN: http://ssrn.com/abstract=141189 or DOI: 10.2139/ssrn.10.2139/ssrn.141189 [Online]. (Accessed: 29 June 2008)

Thomson One Banker. Available at http://banker.thomsonib.com/ta/[Online]

Hussey, J. & Hussey, R. (1997) Business Research. 1st Edition. London, England: Macmillan Press Ltd.

Jensen, M. C. (1988). Takeovers: Their Causes and Consequences. Journal of Economic Perspective , 2 (1), 21 - 48. Economic Perspectives (1986-1998), 2(1), 21. Retrieved September 24, 2008, from ABI/INFORM Global database. (Document ID: 618060241). Available at Proquest http://proquest.umi.com/pqdweb?index=0&did=618060241&SrchMode=2&sid=7&Fmt= 10&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1222257960&clientI d=18060 [Online] [Online] (Accessed: 6 May 2008)

Kato. Kazuo, Kunimura. Michio, Yoshida. Yasushi (1997) Banks Earnings Management before Potential Violation of Dividend Regulation in Japan. Available at Proquest http://proquest.umi.com/pqdweb?index=0&did=1450855931&SrchMode=2&sid=4&Fmt =2&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1222257735&clientI d=18060 [Online] (Accessed: 4 July 2008)

Keller, G., & Warrack, B. (2000) Statistics for Management and Economics. 5th Edition. USA: Duxbury Thomson Learning.

58 -

Khang. Kenneth, King. Tao-Hsien Dolly (Nov 2002) Is Dividend Policy related to Information Asymmetry? Evidence from Insider Trading Gains Available at SSRN: http://ssrn.com/abstract=342621 or DOI: 10.2139/ssrn.10.2139/ssrn.342621 [Online] (Accessed: 11 July 2008) Katz, Etay. Allen and Overy (2008) The Credit Crunch: The Regulatory Way Forward. Law and Financial Markets Review, Vol. 2, No. 3, Available at SSRN: http://ssrn.com/abstract=1133052[Online] (Accessed: 8 April 2008) KPMG (February 2008) Wachovia Corporation 2007 Annual Report Available at: http://www.wachovia.com/file/2007_Wachovia_Annual_Report.pdf [Online] (Accessed: 20 September 2008)

KPMG (February 2007) Wachovia Corporation 2006 Annual Report Available at: http://www.wachovia.com/file/2006_Annual_Report.pdf [Online] (Accessed: 20 August 2008)

KPMG (February 2006) Wachovia Corporation 2005 Annual Report Available at http://www.wachovia.com/file/2005_Annual_Report.pdf [Online] (Accessed: 20 August 2008) KPMG (February 2005) Wachovia Corporation 2004 Annual Report Available at http://www.wachovia.com/file/2004_annualreport.pdf [Online] (Accessed: 20 August 2008)

KPMG (February 2004) Wachovia Corporation 2003 Annual Report Available at: http://www.wachovia.com/file/WB2003annualreport.pdf [Online] (Accessed: 20 August 2008)

KPMG (February 2003) Wachovia Corporation 2002 Annual Report Available at:
http://www.wachovia.com/file/WB2002annualreport.pdf (Accessed: 20 August 2008)

KPMG (March 2008) 2007 Annual Report and Accounts HSBC Holding Plc Available at: http://www.hsbc.com/1/PA_1_1_S5/content/assets/investor_relations/hsbc2007ara0.pdf

59 -

[Online] (Accessed: 20 August 2008)

KPMG (March 2007) 2006 Annual Report and Accounts HSBC Holding Plc Available at http://www.investis.com/reports/hsbc_ar_2006_en/report.php?type=1[Online] (Accessed: 20 August 2008)

KPMG (March 2006) 2005 Annual Report and Accounts HSBC Holding Plc Available at http://www.investis.com/reports/hsbc_ar_2005_en/report.php?type=1 [Online] (Accessed: 20 August 2008)

KPMG (2005) 2004 Annual Report and Accounts HSBC Holding Plc Available at: http://www.ukpersonal.hsbc.co.uk/public/ukpersonal/pdfs/en/annual_results_2004_full.p df [Online] (Accessed: 20 August 2008)

KPMG (2004) 2003 Annual Report and Accounts HSBC Holding Plc Available at: http://www.ukpersonal.hsbc.co.uk/public/ukpersonal/pdfs/en/annual_results_2003_full.p df [Online] (Accessed: 20 August 2008)

KPMG (2003) 2002 Annual Report and Accounts HSBC Holding Plc Available at: http://www.ukpersonal.hsbc.co.uk/public/ukpersonal/pdfs/en/annual_results_2002_full.p df [Online] (Accessed: 20 August 2008)

Knapp, M. C. (1996) Financial Accounting: A Focus on Decision Making. 1st edn. USA: West Publishing Company.

Lee, N., & Lings, I. (2008) Doing Business Research, A Guide to Theory and Practice. 1st Edition. London, England: SAGE Publications Inc.

Li, Erica Xuenan, (March 14, 2006) Investor Protection and Financial Structure. Available at SSRN: http://ssrn.com/abstract=890612 [Online] (Accessed: 17 August 2008)

60 -

Lindgren, B. W. & Berry, D. A. (1981) Elementary Statistics. 1st Edition. New York, USA: Macmillan Publishing Co., Inc.

Lumby, S. & Jones, C. (2003) Corporate Finance Theory & Practice. 7th Edition. London: Thomson.

Marriott, N. & Simon, J. (1990) Financial Accounting: A Spreadsheet Approach. 1st Edition. UK: Prentice Hall International.

McGhee, J. W. (1985) Introductory Statistics.1st Edition. St. Paul, USA: West Publishing Company.

Megginson, W., Smart, S. B., & Lucey, B. M. (2008) Introduction to Corporate Finance. 1st Edition. USA: Southern Western Cengage Learning.

Mihai Yiannaki, Simona, (June 17, 2008) Bank Risk Regulation and the Credit Crunch. Available at SSRN: http://ssrn.com/abstract=1146947 [Online] (Accessed: 2 August 2008) Morse, L. B. (1993) Statistics for Business and Economics. 1st Edition. New York: Harper Collins College Publishers.

Ofer, A. R., & Thakor, A. V. (June 1987) A theory of Stock Price Responses to Alternative Corporate Cash Disbursement Methods: Stock Repurchases and Dividends. The Journal of Finance. Vol 42 (2) Page 365 394. Available at: http://fq4dk7fa6s.search.serialssolutions.com/directLink?&atitle=A%20Theory%20of%2 0Stock%20Price%20Responses%20to%20Alternative%20Corporate%20Cash%20Disbur sement%20Methods%3A%20Stock%20Repurchases%20and%20Dividends&author=Ofe r%2C%20Aharon%20R.%3B%20Thakor%2C%20Anjan%20V.&issn=00221082&title= The%20Journal%20of%20Finance&volume=42&issue=2&date=19870601&spage=365 &id=doi:&sid=ProQ_ss&genre=article&lang=en[Online] (Accessed: 2 May 2008)

61 -

Olli Castrn, Trevor Fitzpatrick and Matthias Sydow (September 2006), What drives EU Banks stock returns? Bank-level evidence using the dynamic dividend-discount model European Central Bank, Working Paper Series, No 677/September 2006. Available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=929447 [Online] (Accessed at: 23 April 2008) PricewaterhouseCoopers LLP (February 2007) J P Morgan Chase & Co Annual Report 2006 Available at: http://investor.shareholder.com/common/download/download.cfm?companyid=ONE&fil eid=86632&filekey=a2d29e0f-1aa6-40d7-bc00d762cbca5c6b&filename=JPMC_AR06_complete.pdf [Online] (Accessed: 20 August 2008)

PricewaterhouseCoopers LLP (February 2006) J P Morgan Chase & Co Annual Report 2005 Available at: http://investor.shareholder.com/common/download/download.cfm?companyid=ONE&fil eid=34666&filekey=D25C186E-7D76-4BA3-AC27445C45622401&filename=ar05_complete.pdf [Online] (Accessed: 20 August 2008)

PricewaterhouseCoopers LLP (February 2005) J P Morgan Chase & Co Annual Report 2004 Available at: http://investor.shareholder.com/common/download/download.cfm?companyid=ONE&fil eid=65440&filekey=6AB5F597-9706-4EDC-8FFE7868E3F7C92C&filename=2004_AR_JPM.pdf [Online] (Accessed: 20 August 2008)

PricewaterhouseCoopers LLP (January 2004) J P Morgan Chase & Co Annual Report 2003 Available at: http://files.shareholder.com/downloads/ONE/420767538x0x65439/177F8E2E-67014439-BBFB-D19B091739B2/2003_AR_JPM.pdf [Online] (Accessed: 20 August 2008)

PricewaterhouseCoopers LLP, (January 2003) 2002 Annual Report and Form 10-K Available at: http://media.corporate-ir.net/media_files/irol/11/117565/pdf/2002AR.pdf [Online] (Accessed: 8 May 2008)

62 -

Pinkowitz, L., Stulz, R., & Williamson, R. (2006). Does the Contribution of Corporate Cash Holdings and Dividends to Firm Value Depend on Governance? A Cross-country Analysis. The Journal of Finance , LXI (6), 2725 - 2751. Available at ProQuest: (http://fq4dk7fa6s.search.serialssolutions.com/directLink?&atitle=Does%20the%20Contr ibution%20of%20Corporate%20Cash%20Holdings%20and%20Dividends%20to%20Fir m%20Value%20Depend%20on%20Governance%3F%20A%20Cross%2Dcountry%20A nalysis&author=LEE%20PINKOWITZ%3B%20RENE%20STULZ%3B%20ROHAN% 20WILLIAMSON&issn=00221082&title=The%20Journal%20of%20Finance&volume= 61&issue=6&date=20061201&spage=2725&id=doi:&sid=ProQ_ss&genre=article&lang =en)[Online] (Accessed: 5 July 2008)

Porter, G. A., & Norton, C. L. (2007) Financial Accounting for Decision Makers. 1st Edition. USA: Thomson South Western.

Porter, G. A., & Norton, C. L. (2004) Financial Accounting: The Impact on Decision Makers. 4th Edition. USA: Thomson South-Western.

Rawlings, J. O. (1988) Applied regression Analysis. 1st Edition. USA: Wadsworth, Inc.

R.Emery, D., Finnerty, J. D., & D.Stowe, J. (2007) Corporate Financial Management. 3rd Edition. New Jersey, USA: Pearson Prentice Hall. Ross, S. A., Westerfield, R. W., & Jaffe, J. (1999) Corporate Finance. 6th Edition. New York, USA: McGraw-Hill Higher Education. Smithson, M. (2000) Statistics with Confidence. 1 st Edition. London, England: Sage Publisher.

Sutton, T. (2000) Corporate Financial Accounting and Reporting. 1 st Edition. Great

63 -

Britain: Financial Times, Pearson Education Limited.

The PNC Financial Services Group, Inc (29 February 2008) FORM 10-K, Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2007 Available at https://www.pnc.com/webapp/unsec/Requester?resource=/wcm/resources/file/eb2b040f1 3aa0ab/IR_AR_2007_10KwLetter.pdf [Online] (Accessed: 10 July 2008)

The PNC Financial Services Group, Inc (5 February 2008) FORM 10-K, Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2006 Available at
https://www.pnc.com/webapp/unsec/Requester?resource=/wcm/resources/file/ebf5844ebe45559/I R_10K_2006_Form10KA_Amendment_No2.pdf [Online] (Accessed: 10 July 2008)

The PNC Financial Services Group, Inc (3 March 2006) PNC 2005 Summary Annual Report Available at: https://www.pnc.com/webapp/unsec/Requester?resource=/wcm/resources/file/eb46700d3 c57b8d/IR_AR_2005_Summary.pdf [Online] (Accessed: 10 July 2008)

The PNC Financial Services Group, Inc (16 March 2005) FORM 10-K, Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2004 Available at: https://www.pnc.com/webapp/unsec/Requester?resource=/wcm/resources/file/eb657548d 3c5470/IR_10K_2004_WithExhibits.pdf [Online] (Accessed: 10 July 2008)

The PNC Financial Services Group, Inc ( 2004) PNC 2003 Summary Annual Report Available at: https://www.pnc.com/webapp/unsec/Requester?resource=/wcm/resources/file/eb466a0d3 c22e56/IR_AR_2003_Summary.pdf [Online] (Accessed: 10 July 2008)

The PNC Financial Services Group, Inc (2003) PNC 2002 Annual Report Available at:https://www.pnc.com/webapp/unsec/Requester?resource=/wcm/resources/file/eb46690 d3c0e447/IR_AR_2002.pdf [Online] (Accessed: 10 July 2008) The New York Job Source (2008), The Largest Banks in the U.S Available at:

64 -

http://nyjobsource.com/banks.html [Online] (Accessed: 7 May 2008) Thomas, R. (1997) Quantitative Methods for Business Studies. 1 st Edition. UK: Prentice Hall.

Wikipedia (2008), List of Banks - UK Major Banks Available at: http://en.wikipedia.org/wiki/List_of_banks#Major_banks_12 [Online] (Accessed: 7 May 2008).

Yermack, D. (1996). Higher Market Valuation of Companies With a Small Board of Directors. Journal of Financial Economics , 40, 185 211. Available at

http://www.sciencedirect.com/science/article/B6VBX-3VWPP496/2/5642a554c146e1788692899ac01b19bb[Online] (Accessed: 8 June 2008)

65 -

Financial Data:
Div Payout Ratio Return on Assets

Names of the banks

Year

MTBV

Net Margin

Leverage Ratio

Country Code

Alliance and Leicester Alliance and Leicester Alliance and Leicester Alliance and Leicester Alliance and Leicester Alliance and Leicester Allied Irish Bank Allied Irish Bank Allied Irish Bank Allied Irish Bank Allied Irish Bank

2002

0.5868

0.0092

0.134

0.95827

2003

2.4

0.5557

0.0093

0.1444

0.96496

2004

2.3

0.5042

0.0099

0.1427

0.96436

2005

2.3

0.5926

0.0081

0.12

0.9625

2006

2.5

0.5612

0.0076

0.1131

0.96247

2007

1.6

2002

0.4109

0.0137

0.1615

0.94463

2003

2.1

0.6853

0.0094

0.137

0.93444

2004

2.4

0.4833

0.0143

0.1961

0.93343

2005

2.2

0.4325

0.016

0.2035

0.9367

2006

2.3

0.3075

0.0216

0.2596

0.92976

66 -

Names of the banks

Year

MTBV

Div Payout Ratio

Return on Assets

Net Margin

Leverage Ratio

Country Code

Allied Irish Bank Bank of Ireland Bank of Ireland Bank of Ireland Bank of Ireland Bank of Ireland Bank of Ireland Bank Of America Bank Of America Bank Of America

2007 2002

1.4 -

0.3708

0.0126

0.1708

0.95022

0 0

2003 2004 2005 2006 2007 2002 2003 2004 2005 2006 2007 2002 2003 2004

2.4 2.3 2.4 2.7 2.3 2.5 1.9 1.8 1.8 1.3 -

0.4512 0.4259 0.4004 0.3849 0.4129 0.4039 0.4607 0.4703 0.4619 -

0.0109 0.0111 0.0109 0.0104 0.0169 0.0174 0.017 0.0161 0.0187 -

0.1683 0.1869 0.1915 0.1453 0.1991 0.2206 0.2146 0.1936 0.1813 -

0.95208 0.95856 0.96106 0.9669 0.92381 0.93485 0.91027 0.9214 0.90733 -

0 0 0 0 0 1 1 1 1 1 1 1 1 1

Bank Of America
Bank Of America Bank Of America Bank of the West Bank of the West Bank of the West

0.1831 0.01201 0.24964 0.82572

0.83498 0.1475 0.01334 0.30078 0.83498 0.83237 0.2807 0.01043 3.38056 0.83237

67 -

Names of the banks

Year

MTBV

Div Payout Ratio

Return on Assets

Net Margin

Leverage Ratio

Country Code

Bank of the West Bank of the West Bank of the West Barclays Barclays Barclays Barclays Barclays Barclays Bradford & Bingley Bradford & Bingley Bradford & Bingley Bradford & Bingley Bradford & Bingley Bradford & Bingley Branch Banking & Trust Comp Branch Banking & Trust Comp

2005 2006 2007 2002 2003 2004 2005 2006 2007 2002 2003 2004 2005 2006 2007

0.84896

0.405

0.00953 0.25617 0.84896

1 1 1 0 0 0 0 0 0 0 0 0 0 0 0

0.84166 0.1444 0.01028 0.19201 0.84166 0.85397 2 2.2 2.3 2.4 1.4 1.5 1.8 1.9 2.1 1.4 0.5139 0.4552 0.4302 0.5495 0.4846 0.5714 0.5108 0 0.608 0.7092 0.97 0.99 0.91 0.99 0.007 0.0071 0.001 0.0048 0.0041 0.126 0.1454 0.1522 0.1255 0.1298 0.102 0.1159 0.0154 0.0843 0.0716 0.96202 0.96242 0.96491 0.97355 0.9725 0.94517 0.95591 0.96157 0.96716 0.96869 -

2002

0.4

0.0172

0.9079

2003

0.89018

0.584

0.0125

0.0415

0.89018

Branch Banking & Trust Comp

2004

0.89181

0.475

0.0162

0.0404

0.8918

68 -

Names of the banks

Year

MTBV

Div Payout Ratio

Return on Assets

Net Margin

Leverage Ratio

Country Code

Branch Banking & Trust Comp Branch Banking & Trust Comp Branch Banking & Trust Comp Comerica Bank Comerica Bank Comerica Bank Comerica Bank Comerica Bank Comerica Bank Countrywide bank Countrywide bank Countrywide bank Countrywide bank Countrywide bank Countrywide bank

2005

0.89806

0.483

0.0158

0.0389

0.89806

2006

0.90321

0.563

0.0134

0.0374

0.90321

2007 2002 2003 2004 2005 2006 2007 2002 2003 2004 2005 2006

0.90475 1.9 2 1.8 1.8 1.3 1.8 2.2 1.7 1.8

0.5647 0.5333 0.4771 0.4305 0.4906 0.0693 0.0459 0.168 0.146 0.1395

0.0134 0.0138 0.0159 0.0186 0.0197 0.0376 0.0466 0.0344 0.0407 0.0459

0.1632 0.2002 0.2462 0.2394 0.2105 0.0789 0.1762 0.1588 0.1399 0.1102

1 1 1 1 1 0.82913 0.91746 0.91983 0.92692 0.92839

1 1 1 1 1 1 1 1 1 1 1 1

2007

0.4

69 -

Names of the banks

Year

MTBV

Div Payout Ratio

Return on Assets

Net Margin

Leverage Ratio

Country Code

Fifth Third Bank Fifth Third Bank Fifth Third Bank Fifth Third Bank Fifth Third Bank Fifth Third Bank HBOS HBOS HBOS HBOS HBOS HBOS HSBC HSBC HSBC HSBC HSBC HSBC J.P Morgan Bank J.P Morgan Bank J.P Morgan Bank J.P Morgan Bank

2002 2003

0.90647

0.355 0.373

2.18 2.01

0.0396 0.0362

0.88953 0.90647

1 1

2004 2005 2006 2007 2002 2003 2004 2005 2006 2007 2002 2003 2004 2005 2006 2007 2002 2003 2004

0.90552 0.91023 0.90045

0.489 0.527 0.742

1.5 1.61 1.05 0.0132 0.0137 0.0094 0.0143 0.016 0.0216 0.0036 0.0101 0.0063

0.0348 0.0323 0.0306 0.0631 0.0961 0.1521 0.12 0.0834 0.1615 0.137 0.1961 0.2035 0.2596 0.0383 0.1515 0.0786

0.90552 0.91023 0.90045 0.88971 0.88952 0.83798 0.80874 0.84665 0.88357 0.89501 0.90655 0.9346 0.93824 0.94425 0.94013 0.9087

1 1 1 1 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1

0.91744 0 0 0 0 0 1.9 0.0571 2.9 0.2863 1.9 0.4109 2.1 0.6853 2.4 0.4833 2.2 0.4325 2.3 0.3075 1.4 1.7 1.3 0 0.4198 0.8774

2005

1.3

0.5714

0.0095

0.1062

0.91058

70 -

Names of the banks

Year

MTBV

Div Payout Ratio

Return on Assets

Net Margin

Leverage Ratio

Country Code

J.P Morgan Bank J.P Morgan Bank Lloyds TSB Lloyds TSB Lloyds TSB Lloyds TSB Lloyds TSB Lloyds TSB Northern Rock Northern Rock Northern Rock Northern Rock Northern Rock Northern Rock PNC PNC PNC PNC PNC PNC

2006 2007 2002 2003 2004 2005 2006 2007 2002 2003 2004 2005 2006 2007 2002 2003 2004 2005 2006 2007

1.5 1.2

0.356 0

0.0141 0.0088 0.0148 0.0107 0.0127 0.0142 0.0096 0.0097 0.0098 0.0053 0.0053 1.78 1.49 1.59 1.5 2.73 -

0.1455 0.1184 0.2101 0.1537 0.0818 0.095 0.1131 0.1141 0.0924 0.0829 0.0857 0.53892 0.51553 0.43496 0.35485 0.56266 -

0.91433 0.96564 0.95893 0.96222 0.96568 0.96651 0.96428 0.96388 0.96397 0.98094 0.97846 0.87982 0.89574 0.89994 0.90046 0.88536 -

1 1 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1

2.6 2.7 2.7 2.9 2.2 2.3 2.4 2.6 2.3 0.2 2.3 2.2 2.5 2 1.5

0.5866 0.7898 0.7668 0.6854 0.3633 0.3498 0.3576 0.4152 0.3827 0.4607 0.545 0.472 0.434 0.244 -

71 -

Names of the banks

Year

MTBV

Div Payout Ratio

Return on Assets

Net Margin

Leverage Ratio

Country Code

Regions bank Regions bank Regions bank Regions bank Regions bank Regions bank Royal Bank of Scotland Royal Bank of Scotland Royal Bank of Scotland Royal Bank of Scotland Royal Bank of Scotland Royal Bank of Scotland Standard Chartered Standard Chartered Standard Chartered Standard Chartered

2002 2003 2004 2005 2006 2007 2002 2003 2004 2005 2006 2007 2002 2003 2004

1.9 1.5 1.5 1.3 0.8

0.4265 0.4276 0.5899 0.6326 0.5243 0.3699

0.0169 0.0164 0.0147 0.0143 0.0141 1.06 1.17 1.15 1.21 1.22 0.0116 0.0141

0.1633 0.1802 0.1774 0.1634 0.1745 0.1679 0.1679 0.1573 0.1392 0.1441 0.1217 0.1511 0.1917

0.91285 0.90839 0.87219 0.87481 0.85561 0.92988 0.93232 0.93882 0.95166 0.94779 0.57928 0.52113 0.46853

1 1 1 1 1 1 0 0 0 0 0 0 0 0 0

1.9 2 1.6 1.6 0.8 2.7 2.8

0.3335 0.2902 0.3722 0.2272 0.7178 0.5944 0.4632

2005

2.5

0.4435

0.0156

0.1675

0.54855

72 -

Names of the banks

Year

MTBV

Div Payout Ratio

Return on Assets

Net Margin

Leverage Ratio

Country Code

Standard Chartered Standard Chartered Sun Trust Bank Sun Trust Bank Sun Trust Bank Sun Trust Bank Sun Trust Bank Sun Trust Bank The Bank of New York The Bank of New York The Bank of New York The Bank of New York The Bank of New York The Bank of New York

2006

2.4

0.4013

0.015

0.1366

0.47737

2007

2.5

2002 2003 2004 2005 2006 2007 2002 2003

2.1 1.7 1.6 1.7 1.2 3.1

0.3691 0.3805 0.3854 0.4022 0.4192 0.6129 0.5

0.0156 0.0139 0.0139 0.0152 0.0154 0.0131 0.0148

0.1769 0.1884 0.2007 0.1829 0.1611 0.1577 0.1836

0.92526 0.9224 0.89937 0.90603 0.90221 1 0.90878

1 1 1 1 1 1 1 1

2004

2.8

0.427

0.0164

0.2048

0.90172

2005 2006

2.5 2.6

0.4039 0.4456

0.0178 0.0321

0.1905 0.3341

0.90325 0.88785

1 1

2007

1.9

73 -

Names of the banks

Year

MTBV

Div Payout Ratio

Return on Assets

Net Margin

Leverage Ratio

Country Code

Union Bank of California Union Bank of California Union Bank of California Union Bank of California Union Bank of California Union Bank of California U.S Bank U.S Bank U.S Bank U.S Bank U.S Bank U.S Bank Wachovia Bank Wachovia Bank Wachovia Bank Wachovia Bank Wachovia Bank

2002 2003 2004 2005 2006 2007 2002 2003 2004 2005 2006 2007 2002 2003 2004 2005 2006

0.3196

0.0146 0.0143 0.0165 0.0153 0.0152 1.84 1.99 2.17 2.21 2.23 0.0112 0.0118 0.0122 0.0131 0.0134

0.0488 0.0444 0.0417 0.0431 0.0408 0.0465 0.0449 0.0425 0.0397 0.0365 0.3397 0.0372 0.0341 0.0324 0.0312

0.87047 0.86696 0.8715 0.87891 0.88917 1 1 1 1 1 0.90469 0.91288 0.89837 0.90307 0.89702

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

0.57355 0.3071 0.60521 0.289

0.66973 0.3155 0.6969 0.73938 0.89747 0.89985 0.90411 0.90331 0.91143 0.3383 0.473 0.441 0.462 0.502 0.527 0.3846

0.91288 0.3931 0.89837 0.4357 0.90307 0.463

0.89702 0.4622

74 -

Names of the banks

Year

MTBV

Div Payout Ratio

Return on Assets

Net Margin

Leverage Ratio

Country Code

Wachovia Bank Washington Mutual Bank Inc Washington Mutual Bank Inc Washington Mutual Bank Inc Washington Mutual Bank Inc Washington Mutual Bank Inc Washington Mutual Bank Inc

2007

0.89755

2002

0.2617

0.0235

0.1584

0.92498

2003

1.8

0.3325

0.0199

0.1874

0.92826

2004

1.8

0.6192

0.0148

0.1686

0.93107

2005

1.6

0.5094

0.0185

0.1609

0.91968

2006

1.5

0.6478

0.0186

0.1353

0.91505

2007

0.6

75 -