Abstract
This study investigates whether bank monitoring influences investor response to a borrowing firm's decision to omit its dividend payments. We establish a new link between the theories of banking and dividend policy in an examination of how bank monitoring and firm dividend signals complement one another to resolve information asymmetries. Results indicate that, for small firms, investors interpret the dividend decision as a function of bank monitoring and the dividend signals taken together. Also reported are the results of tests examining the differences between the monitoring effects of banks versus public and private non-bank lenders.
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