Dividend policy and corporate governance

By reviewing the interactions between dividend policy and other corporate governance mechanisms, this book provides a major contribution to the debate about the best corporate governance system. A conscious effort is made to compare existing empirical studies on the UK and US with those on other countries such as France, Germany, and Japan. The book provides new empirical evidence on German dividend policy, one of the representatives of the corporate governance system of Continental Europe – a system that remains largely under‐researched. We find major differences between the dividend policy of German firms and that of UK or US firms. First, the conventional wisdom, which states that German dividends are lower than UK or US dividends is not necessarily upheld as on a published profits basis; the exact converse is true. Second, dividends in the UK and US are relatively smooth as they are characterized by frequent, but small changes, whereas dividends in Germany show less frequent, but larger changes. Third, we find a link between corporate control and dividend payouts. Fourth, we report evidence that the existence of a loss is an additional determinant of dividend changes. Finally, we do not find a link between the tax status of the controlling shareholder and the firm's dividend payout. Our results have important implications for the current debate on the best corporate governance system.