Abstract

http://ssrn.com/abstract=18000
 
 

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An International Comparison of Accounting-Based Payout Restrictions in the United States, United Kingdom and Germany


Christian Leuz


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Center for Financial Studies (CFS); University of Pennsylvania - Wharton Financial Institutions Center; CESifo Research Network

Dominic Deller


Johan Wolfgang Goethe University

Michael Stubenrath


Johan Wolfgang Goethe University

May 1997


Abstract:     
Agency theory shows that payout constraints can play an important role in debt contracting and mitigating debt-related incentive problems. In this paper, we compare how, empirically, corporations in the UK, the USA and Germany are restricted in their ability to pay dividends (and other forms of payouts) to shareholders. Our study is novel in two respects: First, although there is ample evidence on the use of accounting-based payout restrictions in US debt contracts, and some evidence in the UK, there are no comparable studies on accounting-based payout constraints in German debt contracts. Second, we include debt contracts as well as regulation on dividends in the comparison to highlight the interdependencies between mandated and contractual payout restrictions.

Despite marked institutional differences between the US, the UK and Germany, our comparison demonstrates that corporations are restricted in a similar fashion based in all three countries. This holds for the shape of the dividend restrictions based on accounting numbers as well as some key accounting principles determining net earnings and other accounting numbers used in payout restrictions. Our comparison suggests, for instance, that historical cost valuation and conservatism are ubiquitous in restricting dividends. We find that differences mainly exist with regard to the origin of the restrictions. In Germany, dividend restrictions are predominantly mandated, in the UK, mandated restrictions are supplemented by debt covenants and in the US, dividend restrictions follow primarily from debt contracting. By integrating contractual provisions as well as regulation on dividends, our comparison provides additional insights into the debt contracting process and offers a more complete picture than previous studies.

JEL Classification: G35, G28, M41

working papers series





Not Available For Download

Date posted: May 12, 1997  

Suggested Citation

Leuz, Christian and Deller, Dominic and Stubenrath, Michael, An International Comparison of Accounting-Based Payout Restrictions in the United States, United Kingdom and Germany (May 1997). Available at SSRN: http://ssrn.com/abstract=18000

Contact Information

Christian Leuz (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-1996 (Phone)
HOME PAGE: http://chicagobooth.edu/fac/christian.leuz
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
HOME PAGE: http://www.nber.org
European Corporate Governance Institute (ECGI)
Brussels
Belgium
HOME PAGE: http://www.ecgi.org
Center for Financial Studies (CFS) ( email )
Grüneburgplatz 1
Frankfurt am Main, 60323
Germany
University of Pennsylvania - Wharton Financial Institutions Center
3641 Locust Walk
Philadelphia, PA 19104-6218
United States
CESifo Research Network
Poschinger Str. 5
Munich, DE-81679
Germany
Dominic Deller
Johan Wolfgang Goethe University ( email )
Mertonstrasse 17-25
Frankfurt am Main, D-60325
Germany
Michael Stubenrath
Johan Wolfgang Goethe University ( email )
Senckenberganlage 31
Postfach 111932
60325 Frankfurt am Main
Germany
+49 69 7982 8174 (Phone)
+49 69 7982 3457 (Fax)
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