Who's Afraid of Universal Banks? Bank Affiliations and Corporate Dividend Policy in Pre-World War I Belgium

Abstract

We investigate the impact of universal banks on the dividend policy of affiliated companies, in an environment characterized by poor investor protection, booming stock markets and strong banks. Our results, based on a unique, hand-collected sample of 428 listed companies in pre-World War I Belgium, are consistent with the hypothesis that companies with a bank director on their board paid high and stable dividend to establish a good reputation with investors. However, we also find that companies with several bank directors and companies in which the bank had an equity stake paid lower dividends.