Lower propensity to pay dividends? new evidence from Europe

Abstract

Recently, some empirical studies reported the phenomenon of the low propensity of firms to dividend payment, concluding that companies have become less likely to pay dividends. In addition, the major parts of these studies sustain the 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 are different from each other for several reasons. Firstly, the UK is one of the most important European capital markets, whereas the French and Portuguese markets are smaller, specially Portugal, that is a very small market compared to other Western European markets. Additionally, these two markets are less intensively researched. Secondly, we have differences in these countries associated with the ownership of equity. In Portugal and France ownership tends to be more concentrated than in the UK. Thirdly, Portugal and France are bank-based system, whereas the UK is a market-based system. Finally, the legal rules covering protection of corporate shareholders is different in the three countries. While the UK is a country of Anglo-Saxon influence, the other two countries are characterised by a continental influence. We find evidence of the decline of firms paying dividends, except for the French market. Moreover, we find evidence suggesting that the Portuguese market does not have such a smoothing dividend policy like the US or the UK markets, but it has a more volatile dividend policy, such as the case of the German market.