Dividends and Share Repurchases in the European Union

Abstract

Using a database of over 4100 listed industrial companies, we examine the evolution of cash dividends and share repurchases from 1989 to 2005 in the fifteen nations that were members of the European Union before May 2004. As in the United States, the fraction of European firms paying dividends declines over this period, while total real dividends paid increase significantly. Most strikingly, share repurchases have surged in the EU, rising to over half the value of cash dividend payments in 2005. We also show that financial reporting frequency has steadily increased and is associated with higher payout, and that privatized companies account for almost one-quarter of total EU cash dividend payments but only two percent of the number of listed firms. Our logistic regression analyses of the likelihood to pay dividends and repurchase shares, and our panel data analyses of the payout amounts, verify that similar influences affect payout in the EU as in America, but that increasing fractions of retained earnings to total equity do not increase the likelihood of cash payouts, whereas company age does.

Keywords: Payout policy, international financial markets, economic integration

JEL Classification: G35, G15, F15