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The Dividend Policy of German Firms


Christian Andres


WHU - Otto Beisheim School of Management

André Betzer


BUW- Schumpeter School of Business and Economics

Marc Goergen


Cardiff University - Cardiff Business School; European Corporate Governance Institute (ECGI)

Luc Renneboog


Tilburg University - Department of Finance; European Corporate Governance Institute (ECGI); Tilburg Law and Economics Center (TILEC)

August 4, 2008

CentER Discussion Paper Series No. 2008-67
TILEC Discussion Paper No. 2008-27
ECGI - Finance Working Paper No. 216/2008

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.

Number of Pages in PDF File: 38

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

JEL Classification: G32, G35

working papers series





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Date posted: September 2, 2008 ; Last revised: October 1, 2008

Suggested Citation

Andres, Christian and Betzer, André and Goergen, Marc and Renneboog, Luc, The Dividend Policy of German Firms (August 4, 2008). CentER Discussion Paper Series No. 2008-67; TILEC Discussion Paper No. 2008-27; ECGI - Finance Working Paper No. 216/2008. Available at SSRN: http://ssrn.com/abstract=1262171 or http://dx.doi.org/10.2139/ssrn.1262171

Contact Information

Christian Andres
WHU - Otto Beisheim School of Management ( email )
Burgplatz 2
Vallendar, 56179
Germany
André Betzer
BUW- Schumpeter School of Business and Economics ( email )
Gaußstraße 20
Wuppertal
Germany
HOME PAGE: http://finance.uni-wuppertal.de/index.php?id=1153
Marc Goergen
Cardiff University - Cardiff Business School ( email )
Colum Drive
Cardiff, CF10 3EU
United Kingdom
HOME PAGE: http://www.cf.ac.uk/carbs/faculty/goergenm/index.html
European Corporate Governance Institute (ECGI) ( email )
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
HOME PAGE: http://www.ecgi.org
Luc Renneboog (Contact Author)
Tilburg University - Department of Finance ( email )
P.O. Box 90153
Warandelaan 2
5000 LE Tilburg
Netherlands
+13 31 466 8210 (Phone)
+13 31 466 2875 (Fax)
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
Tilburg Law and Economics Center (TILEC)
Warandelaan 2
Tilburg, 5000 LE
Netherlands
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