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The Dividend Policy of German FirmsChristian AndresWHU - Otto Beisheim School of Management André BetzerBUW- Schumpeter School of Business and Economics Marc GoergenCardiff University - Cardiff Business School; European Corporate Governance Institute (ECGI) Luc RenneboogTilburg 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 seriesDate posted: September 2, 2008 ; Last revised: October 1, 2008Suggested CitationContact Information
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