IDEAS home Printed from https://ideas.repec.org/p/tiu/tiucen/13d8dd39-20ab-48b4-991e-b670d3c3cecc.html
   My bibliography  Save this paper

Dividend Policy of German Firms

Author

Listed:
  • Goergen, M.
  • Renneboog, L.D.R.

    (Tilburg University, Center For Economic Research)

  • Correia Da Silva, L.

Abstract

German firms pay out a lower proportion of their cash flows than UK and US firms.However, on a published profits basis, the pattern is reversed.Company law provisions and accounting policies account for these conflicting results.A partial adjustment model is used to estimate the implicit target payout ratio and the speed of adjustment of dividends towards a long run target payout ratio. We find that German firms do not base their dividend decisions on published earnings, but on cash flows.The reasons for the use of a cash flow-based payout policy are: (i) published earnings figures do not correctly reflect corporate performance as German firms tend to retain a significant part of their earnings to build up legal reserves, (ii) the conservative nature of German accounting policies, (iii) published earnings are subject to a higher degree of smoothing than cash flows.Regarding the speed of adjustment of dividends towards the long term target payout ratio, UK and US companies only slowly adjust their dividend policy whereas German are more willing to cut the dividend in the wake of a temporary decrease in profitability.This causes a higher degree of 'discreteness' in the dividends-pershare time series as opposed to the 'smoothness' (i.e., frequent annual small adjustments in the dividend per share) observed in the US and the UK.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Goergen, M. & Renneboog, L.D.R. & Correia Da Silva, L., 2004. "Dividend Policy of German Firms," Discussion Paper 2004-122, Tilburg University, Center for Economic Research.
    • Handle: RePEc:tiu:tiucen:13d8dd39-20ab-48b4-991e-b670d3c3cecc
    as

    Download full text from publisher

    File URL: https://pure.uvt.nl/ws/portalfiles/portal/630184/122.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Eugene F. Fama & Kenneth R. French, 2001. "Disappearing Dividends: Changing Firm Characteristics Or Lower Propensity To Pay?," Journal of Applied Corporate Finance, Morgan Stanley, vol. 14(1), pages 67-79, March.
    2. Amemiya, Takeshi, 1973. "Regression Analysis when the Dependent Variable is Truncated Normal," Econometrica, Econometric Society, vol. 41(6), pages 997-1016, November.
    3. Franks, Julian & Mayer, Colin, 2001. "Ownership and Control of German Corporations," The Review of Financial Studies, Society for Financial Studies, vol. 14(4), pages 943-977.
    4. Renneboog, Luc & Szilagyi, Peter G., 2020. "How relevant is dividend policy under low shareholder protection?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 64(C).
    5. Harris, Ts & Lang, M & Moller, Hp, 1994. "The Value Relevance Of German Accounting Measures - An Empirical-Analysis," Journal of Accounting Research, Wiley Blackwell, vol. 32(2), pages 187-209.
    6. Amihud, Yakov & Li, Kefei, 2006. "The Declining Information Content of Dividend Announcements and the Effects of Institutional Holdings," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 41(3), pages 637-660, September.
    7. Pettit, R Richardson, 1972. "Dividend Announcements, Security Performance, and Capital Market Efficiency," Journal of Finance, American Finance Association, vol. 27(5), pages 993-1007, December.
    8. Goergen, Marc & Renneboog, Luc & Correia da Silva, Luis, 2005. "When do German firms change their dividends?," Journal of Corporate Finance, Elsevier, vol. 11(1-2), pages 375-399, March.
    9. 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.
    10. Adaoglu, Cahit, 2000. "Instability in the dividend policy of the Istanbul Stock Exchange (ISE) corporations: evidence from an emerging market," Emerging Markets Review, Elsevier, vol. 1(3), pages 252-270, November.
    11. 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(5), pages 741-755, December.
    12. Correia da Silva, Luis & Goergen, Marc & Renneboog, Luc, 2004. "Dividend Policy and Corporate Governance," OUP Catalogue, Oxford University Press, number 9780199259304.
    13. Brickley, James A., 1983. "Shareholder wealth, information signaling and the specially designated dividend : An empirical study," Journal of Financial Economics, Elsevier, vol. 12(2), pages 187-209, August.
    14. 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.
    15. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    16. Edwards,Jeremy & Fischer,Klaus, 1996. "Banks, Finance and Investment in Germany," Cambridge Books, Cambridge University Press, number 9780521566087, September.
    17. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 31(3), pages 129-137.
    18. Brandon Julio & David L. Ikenberry, 2004. "Reappearing Dividends," Journal of Applied Corporate Finance, Morgan Stanley, vol. 16(4), pages 89-100.
    19. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    20. Alexander, Ian & Mayer, Colin, 1990. "Banks and Securities Markets: Corporate Financing in Germany and the UK," CEPR Discussion Papers 433, C.E.P.R. Discussion Papers.
    21. Aivazian, Varouj A. & Booth, Laurence & Cleary, Sean, 2006. "Dividend Smoothing and Debt Ratings," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 41(2), pages 439-453, June.
    22. Dennis C. Mueller, 1967. "The Firm Decision Process: An Econometric Investigation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 81(1), pages 58-87.
    23. Watts, Ross, 1973. "The Information Content of Dividends," The Journal of Business, University of Chicago Press, vol. 46(2), pages 191-211, April.
    24. Merton H. Miller & Franco Modigliani, 1961. "Dividend Policy, Growth, and the Valuation of Shares," The Journal of Business, University of Chicago Press, vol. 34, pages 411-411.
    25. 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.
    26. Benzinho, José, 2004. "The dividend policy of the Portuguese corporations: Evidence from Euronext Lisbon," MPRA Paper 1137, University Library of Munich, Germany.
    27. Tehmina Khan, 2006. "Company Dividends and Ownership Structure: Evidence from UK Panel Data," Economic Journal, Royal Economic Society, vol. 116(510), pages 172-189, March.
    28. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
    29. Marsh, Terry A & Merton, Robert C, 1987. "Dividend Behavior for the Aggregate Stock Market," The Journal of Business, University of Chicago Press, vol. 60(1), pages 1-40, January.
    30. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sabur A. Mollah, 2009. "Testing Partial Adjustment Dividend Behavioral Models In Emerging Markets: Evidence From Pre And Post Market Reforms In Bangladesh," Global Journal of Business Research, The Institute for Business and Finance Research, vol. 3(1), pages 1-14.
    2. Renneboog, Luc & Szilagyi, Peter G., 2020. "How relevant is dividend policy under low shareholder protection?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 64(C).
    3. Andres, Christian & Fernau, Erik & Theissen, Erik, 2012. "Is it better to say goodbye? When former executives set executive pay," CFR Working Papers 12-02, University of Cologne, Centre for Financial Research (CFR).
    4. Al-Malkawi, Husam-Aldin Nizar & Bhatti, M. Ishaq & Magableh, Sohail I., 2014. "On the dividend smoothing, signaling and the global financial crisis," Economic Modelling, Elsevier, vol. 42(C), pages 159-165.
    5. Schmid, Thomas & Ampenberger, Markus & Kaserer, Christoph & Achleitner, Ann-Kristin, 2010. "Controlling shareholders and payout policy: do founding families have a special 'taste for dividends'?," CEFS Working Paper Series 2010-01, Technische Universität München (TUM), Center for Entrepreneurial and Financial Studies (CEFS).
    6. Abdou, Hussein A. & Pointon, John & El-Masry, Ahmed & Olugbode, Moji & Lister, Roger J., 2012. "A variable impact neural network analysis of dividend policies and share prices of transportation and related companies," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(4), pages 796-813.
    7. Fernau, Erik & Hirsch, Stefan, 2019. "What drives dividend smoothing? A meta regression analysis of the Lintner model," International Review of Financial Analysis, Elsevier, vol. 61(C), pages 255-273.
    8. Szilagyi, P.G., 2007. "Corporate governance and the agency costs of debt and outside equity," Other publications TiSEM 9520d40a-224f-43a8-9bf9-b, Tilburg University, School of Economics and Management.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Andres, Christian & Betzer, André & Goergen, Marc & Renneboog, Luc, 2009. "Dividend policy of German firms: A panel data analysis of partial adjustment models," Journal of Empirical Finance, Elsevier, vol. 16(2), pages 175-187, March.
    2. Fernau, Erik & Hirsch, Stefan, 2019. "What drives dividend smoothing? A meta regression analysis of the Lintner model," International Review of Financial Analysis, Elsevier, vol. 61(C), pages 255-273.
    3. Szilagyi, P.G., 2007. "Corporate governance and the agency costs of debt and outside equity," Other publications TiSEM 9520d40a-224f-43a8-9bf9-b, Tilburg University, School of Economics and Management.
    4. Renneboog, Luc & Szilagyi, Peter G., 2020. "How relevant is dividend policy under low shareholder protection?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 64(C).
    5. Goergen, M. & Renneboog, L.D.R. & Correia Da Silva, L., 2004. "Dividend policy of German firms : A dynamic panel analysis of partial adjustment models," Other publications TiSEM 64409bc5-8a76-467e-b19c-c, Tilburg University, School of Economics and Management.
    6. Booth, Laurence & Zhou, Jun, 2017. "Dividend policy: A selective review of results from around the world," Global Finance Journal, Elsevier, vol. 34(C), pages 1-15.
    7. Christian Andres & André Betzer & Inga Bongard & Marc Goergen, 2019. "Dividend policy, corporate control and the tax status of the controlling shareholder," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 46(2), pages 157-189, June.
    8. Enrico Onali, 2014. "Moral Hazard, Dividends, and Risk in Banks," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 41(1-2), pages 128-155, January.
    9. Darakhshan Younis & Attiya Yasmin Javid, 2014. "Market Imperfections and Dividend Policy Decisions of Manufacturing Sector of Pakistan," PIDE-Working Papers 2014:99, Pakistan Institute of Development Economics.
    10. Andres, Christian & Hofbaur, Ulrich, 2017. "Do what you did four quarters ago: Trends and implications of quarterly dividends," Journal of Corporate Finance, Elsevier, vol. 43(C), pages 139-158.
    11. Eva Liljeblom & Sabur Mollah & Patrik Rotter, 2015. "Do dividends signal future earnings in the Nordic stock markets?," Review of Quantitative Finance and Accounting, Springer, vol. 44(3), pages 493-511, April.
    12. Chacko Jacob & Jijo Lukose P.J., 2018. "Institutional Ownership and Dividend Payout in Emerging Markets: Evidence from India," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 17(1_suppl), pages 54-82, April.
    13. Renneboog, Luc & Trojanowski, Grzegorz, 2011. "Patterns in payout policy and payout channel choice," Journal of Banking & Finance, Elsevier, vol. 35(6), pages 1477-1490, June.
    14. Andres, Christian & Betzer, André & Goergen, Marc, 2011. "Dividend policy, corporate control and tax clienteles: The case of Germany," CFS Working Paper Series 2011/16, Center for Financial Studies (CFS).
    15. Christian Andres & André Betzer & Inga van den Bongard & Christian Haesner & Erik Theissen, 2011. "Dividend Announcements Reconsidered - Dividend Changes versus Dividend Surprises," Schumpeter Discussion Papers sdp11013, Universitätsbibliothek Wuppertal, University Library.
    16. Maria Elisabete Duante Neves, 2017. "Payout and Firm's Catering," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(4), pages 104-132.
    17. Duqi, Andi & Jaafar, Aziz & Warsame, Mohammed H., 2020. "Payout policy and ownership structure: The case of Islamic and conventional banks," The British Accounting Review, Elsevier, vol. 52(1).
    18. repec:ers:journl:v:v:y:2017:i:4:p:104-132 is not listed on IDEAS
    19. Trojanowski, G., 2004. "Ownership structure as a mechanism of corporate governance," Other publications TiSEM 5dbc874d-d1d0-44a5-9717-8, Tilburg University, School of Economics and Management.
    20. Goergen, Marc & Renneboog, Luc & Correia da Silva, Luis, 2005. "When do German firms change their dividends?," Journal of Corporate Finance, Elsevier, vol. 11(1-2), pages 375-399, March.
    21. Wei Hao & Udomsak Wongchoti & Martin Young & Jianguo Chen, 2021. "R2 and the corporate signaling effect," International Review of Finance, International Review of Finance Ltd., vol. 21(4), pages 1353-1381, December.

    More about this item

    Keywords

    Dividend policy; payout policy; Lintner dividend model; dividend smoothing; partial adjustment model; corporate governance;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tiu:tiucen:13d8dd39-20ab-48b4-991e-b670d3c3cecc. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Richard Broekman (email available below). General contact details of provider: http://center.uvt.nl .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.