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When do German Firms Change their Dividends?

Posted: 4 May 2005  

Marc Goergen

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

Luis Correia da Silva

Oxford Economic Research Associates (OXERA)

Luc Renneboog

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

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Abstract

Dividends of German firms are often perceived to be more flexible than those of Anglo-American firms. We analyse the decision to change the dividend for 221 German firms over 1984-93. Consistent with Lintner (1956), net earnings are key determinants of dividend changes. However, our findings also refine those of Lintner (1956) and Miller and Modigliani (1961). First, the occurrence of a loss is a key determinant of dividends in addition to the traditional key determinant, the level of net earnings. Second, the majority of dividend cuts or omissions are temporary. This stands in marked contrast with DeAngelo et al. (1992) who report that US firms are more likely to reduce their dividend when earnings deteriorate on a permanent basis. Finally, we find that firms with a bank as their major shareholder are more willing to omit their dividend than firms controlled by other shareholders.

Keywords: Dividend policy, ownership, control, bank monitoring, corporate governance

JEL Classification: G32, G35

Suggested Citation

Goergen, Marc and Correia da Silva, Luis and Renneboog, Luc, When do German Firms Change their Dividends?. Journal of Corporate Finance, Vol. 11, pp. 375-399, 2005. Available at SSRN: https://ssrn.com/abstract=714461

Marc Goergen (Contact Author)

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

Luis Correia da Silva

Oxford Economic Research Associates (OXERA) ( email )

Alfred Street
Oxford OX1 4EH
United Kingdom
+44 (01865) 251 142 (Phone)

Luc Renneboog

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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