When do German Firms Change their Dividends?
Cardiff University - Cardiff Business School; European Corporate Governance Institute (ECGI)
Luis Correia da Silva
Oxford Economic Research Associates (OXERA)
Tilburg University - Department of Finance; European Corporate Governance Institute (ECGI); Tilburg Law and Economics Center (TILEC)
Journal of Corporate Finance, Vol. 11, pp. 375-399, 2005
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
Date posted: May 4, 2005