The Dividend Policy and Managerial Risk in Banks: Focusing on the Moderating Role of Capital Adequacy in Korea

This study empirically examines the relationship between dividend policy and management risk in Korean banks from 1999 to 2024, using fixed-effects panel regression analysis. Z-Score and standard deviation of ROE served as a proxy for bank management risk, with the study analyzing the effects of dividend payout ratio, BIS capital ratio, and their interaction on Z-Score and standard deviation of ROE. As a result, first, depending on bank characteristics, the dividend payout ratio may increase management risk or have no effect, but capital regulations can reduce this risk in banks where it increases. Second, non-linearity was found for the dividend payout ratio, also the BIS ratio exhibited non-linearity, suggesting an optimal BIS ratio can minimize management risk and promote bank stabilization. Third, for banks with lower capital adequacy (bottom 50% BIS), increasing dividends significantly amplified management risk, indicating a need for strict dividend restrictions linked to the BIS ratio for these banks. In conclusion, while a bank's dividend policy can elevate management risk, this can be mitigated through appropriate capital regulations. Financial authorities can preemptively regulate bank dividend policies via capital regulations to prevent increased management risks and stabilize the financial system.