Dividend Policy in the European Union

Using a unique database of over 3400 listed industrial companies, we examine the evolution of dividend policy from 1989 to 2003 in the fifteen nations that were members of the European Union in May 2004. As in the United States, the fraction of European firms paying dividends declines dramatically over this period, from 91 to 62 percent of listed companies, while total real dividends paid and dividend payments as a fraction of total corporate profits increase significantly. Dividends and earnings are concentrating as sharply among European as among American companies, and similar company characteristics like size, profitability, and firm age increase both the propensity to pay dividends and the amount of dividends paid. Asset growth rate, leverage and being headquartered in a civil law country reduce dividend amounts and propensities to pay, but we find neither systematic dividend catering effects in Europe nor conclusive evidence of continent-wide convergence in dividend policy