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In the wake of the recent global financial crisis central banks and regulators are concerned about redirection of bailout funds into dividends. Yet, the authors do not know much about the extent banks follow dividend policies and funding decisions optimal to generating shareholders' wealth because banks have been mostly absent from an otherwise expansive literature on dividend policy. A relative, multi-period analysis of the troubled Japanese regional banks for the period 1998-2007 identifies inefficiencies in the levels of dividends, retained earnings, external funding and share performance. The paper unfolds further by investigating associations between inefficiencies and non-performing loans, followed by a comparison of efficient versus inefficient banks across good and bad economic times.
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