The Dividend Policy of German Firms

C. Andres, A. Betzer, M. Goergen, L.D.R. Renneboog

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German firms pay out a lower proportion of their cash flows, but a higher proportion of their published profits than UK and US firms. We estimate partial adjustment models and report two major findings. First, German firms base their dividend decisions on cash flows rather than published earnings as (i)published earnings do not correctly reflect performance because German firms retain parts of their earnings to build up legal reserves, (ii) German accounting is conservative, (iii) published earnings are subject to more smoothing than cash flows. Second, to the opposite of UK and US firms, German firms have more flexible dividend policies as they are willing to cut the dividend when profitability is only temporarily down.
Original languageEnglish
Place of PublicationTilburg
Number of pages35
Publication statusPublished - 2008

Publication series

NameCentER Discussion Paper


  • Dividend policy
  • payout policy
  • target payout ratio
  • Lintner dividend model
  • dividend smoothing
  • partial adjustment model
  • corporate governance


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