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The Dividend Policy of German Firms

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  • Andres, C.
  • Betzer, A.
  • Goergen, M.
  • Renneboog, L.D.R.

    (Tilburg University, Tilburg Law and Economics Center)

Abstract

Abstract: German firms pay out a lower proportion of their cash flows, but a higher proportion of their published profits than UK and US firms. We estimate partial adjustment models and report two major findings. First, German firms base their dividend decisions on cash flows rather than published earnings as (i) published earnings do not correctly reflect performance because German firms retain parts of their earnings to build up legal reserves, (ii) German accounting is conservative, (iii) published earnings are subject to more smoothing than cash flows. Second, to the opposite of UK and US firms, German firms have more flexible dividend policies as they are willing to cut the dividend when profitability is only temporarily down.

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Bibliographic Info

Paper provided by Tilburg University, Tilburg Law and Economic Center in its series Discussion Paper with number 2008-027.

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Date of creation: 2008
Date of revision:
Handle: RePEc:dgr:kubtil:2008027

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Web page: http://www.tilburguniversity.nl/tilec/

Related research

Keywords: Dividend policy; payout policy; target payout ratio; Lintner dividend model; dividend smoothing; partial adjustment model; corporate governance;

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References

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  1. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
  2. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
  3. Franks, Julian R & Mayer, Colin, 2001. "Ownership and Control of German Corporations," CEPR Discussion Papers 2898, C.E.P.R. Discussion Papers.
  4. DeAngelo, Harry & DeAngelo, Linda & Skinner, Douglas J., 2004. "Are dividends disappearing? Dividend concentration and the consolidation of earnings," Journal of Financial Economics, Elsevier, vol. 72(3), pages 425-456, June.
  5. Correia da Silva, Luis & Goergen, Marc & Renneboog, Luc, 2004. "Dividend Policy and Corporate Governance," OUP Catalogue, Oxford University Press, number 9780199259304.
  6. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  7. Fama, Eugene F. & French, Kenneth R., 2001. "Disappearing dividends: changing firm characteristics or lower propensity to pay?," Journal of Financial Economics, Elsevier, vol. 60(1), pages 3-43, April.
  8. Brandon Julio & David L. Ikenberry, 2004. "Reappearing Dividends," Journal of Applied Corporate Finance, Morgan Stanley, vol. 16(4), pages 89-100.
  9. McDonald, John G. & Jacquillat, Bertrand & Nussenbaum, Maurice, 1975. "Dividend, Investment and Financing Decisions: Empirical Evidence on French Firms," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 10(05), pages 741-755, December.
  10. Benzinho, José, 2004. "The dividend policy of the Portuguese corporations: Evidence from Euronext Lisbon," MPRA Paper 1137, University Library of Munich, Germany.
  11. Vives,Xavier (ed.), 2006. "Corporate Governance," Cambridge Books, Cambridge University Press, number 9780521032032, December.
  12. Correia da Silva, L. & Goergen, M. & Renneboog, L.D.R., 2002. "When do German Firms Change their Dividends?," Discussion Paper 2002-056, Tilburg University, Center for Economic Research.
  13. Renneboog, L.D.R. & Trojanowski, G., 2005. "Control Structures and Payout Policy," Discussion Paper 2005-61, Tilburg University, Center for Economic Research.
  14. Renneboog, L.D.R. & Szilagyi, P.G., 2006. "How Relevant is Dividend Policy under Low Shareholder Protection?," Discussion Paper 2006-019, Tilburg University, Tilburg Law and Economic Center.
  15. Short, Helen & Zhang, Hao & Keasey, Kevin, 2002. "The link between dividend policy and institutional ownership," Journal of Corporate Finance, Elsevier, vol. 8(2), pages 105-122, March.
  16. Aivazian, Varouj A. & Booth, Laurence & Cleary, Sean, 2006. "Dividend Smoothing and Debt Ratings," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 41(02), pages 439-453, June.
  17. Mayer, Colin & Alexander, Ian, 1990. "Banks and securities markets: Corporate financing in Germany and the United Kingdom," Journal of the Japanese and International Economies, Elsevier, vol. 4(4), pages 450-475, December.
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