Are dividends disappearing? mixed evidence from Europe

Abstract

Recent empirical studies reported the phenomenon of low propensity of firms to dividend payment, concluding that companies have become less likely to pay dividends. In addition, most of these studies claim that investors’ expectations regarding dividend payments also decreased. We analyse the propensity to pay dividends in three European markets: Portugal, France and the UK. Although they are all European markets, they differ from each other for several reasons. Firstly, the UK is one of the largest European capital markets, whereas the French and Portuguese markets are smaller, especially Portugal. Additionally, these latter two markets are less intensively researched. Secondly, these countries differ in terms of ownership concentration. In Portugal and France ownership tends to be more concentrated than in the UK. Thirdly, Portugal and France are bank-based financing systems, whereas the UK is a market-based system. Finally, the legal rules covering protection of corporate shareholders are different in the three countries. We find evidence of the decline of firms paying dividends in Portugal and in the UK, but not in France. Moreover, we find some evidence that firms that pay dividends tend to be the ones of larger size and higher profitability, but we find no evidence of a significant relation between a firm’s growth and dividend payments.