Flexibility of Dividend Policies and Shareholders' Returns in the European Union

30 Pages Posted: 13 Feb 2009 Last revised: 18 Mar 2009

See all articles by J. Henk von Eije

J. Henk von Eije

University of Groningen - Faculty of Economics and Business

William L. Megginson

University of Oklahoma

Multiple version iconThere are 2 versions of this paper

Date Written: March 16, 2009

Abstract

We study dividend policies and dividend flexibility and use the annual abnormal return methodology to investigate the impact of more or less flexible policies for stock returns. We focus on the European Union which accommodates two corporate governance systems. We show that common law companies focus on cash dividends while civil law companies are more frequent repurchasers. This indicates that common law companies have more rigid dividend policies. Common law companies also have larger target payout ratios and smaller speeds of adjustment than civil law companies. Concomitantly, stockholders' reactions to cash dividends initiations and changes are fiercer in common law companies. In civil law companies relatively large repurchase amounts increase average abnormal returns, while a frequent use of repurchases diminishes abnormal returns. Common law shareholders strongly prefer an increase of cash dividends above an increase in repurchases, if a company already distributed through repurchases and cash dividends in the previous year. In civil law companies, repurchase increases are then slightly preferred.

Keywords: payout flexibility, shareholder returns, cash dividends, repurchases, European Union

JEL Classification: G35, G34, G14

Suggested Citation

von Eije, J. Henk and Megginson, William L., Flexibility of Dividend Policies and Shareholders' Returns in the European Union (March 16, 2009). Available at SSRN: https://ssrn.com/abstract=1342671 or http://dx.doi.org/10.2139/ssrn.1342671

J. Henk Von Eije (Contact Author)

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands

William L. Megginson

University of Oklahoma ( email )

307 W Brooks, 205A Adams Hall
Norman, OK 73019
United States
(405) 325-2058 (Phone)
(405) 325-1957 (Fax)

HOME PAGE: http://faculty-staff.ou.edu/M/William.L.Megginson-

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