The dividend policy in Europe : the cases of the UK, Germany, France and Italy
This thesis attempts to provide a comparative and comprehensive understanding of corporate dividend policy in European Countries. I examine the dividend policy of the firm in the UK, Germany, France and Italy. The thesis is motivated by the importance of dividend policy theory in the area of finance, the mixed theoretical and empirical evidence, the predominately US based literature and by the financial, institutional and corporate governance differences between European countries. The thesis examines the "big three imperfections" of the dividend policy: taxation, asymmetric information and agency costs. The uniqueness of the thesis is its European character. The main argument is that differences in taxation and corporate governance systems between European countries can prove a useful tool for providing some answers to the dividend puzzle. With respect to dividend taxation systems the UK operates a partial imputation system while Germany, France and Italy operate full imputation systems. With respect to the corporate governance systems the UK is characterised as a market-based country while Germany, France and Italy are characterised as bank-based systems. In general results show that there are significant differences between dividend taxation systems in European countries that result in variations of the tax discrimination variable. In all countries ex-day returns are positive and significant suggesting that ex-day prices fall by less than the amount of dividends. Results confirm that in countries where the differential taxation between dividends and capital gains is high, ex-day returns are high. Also, I find that changes in the tax systems that affect taxes on dividend and/or capital gains alter significantly ex-day returns. Furthermore, the corporate governance differences between market-based and bank-based countries result in different levels of information asymmetries and/or agency conflicts. Results in all the countries show significant share price reaction on the dividend announcement days. Evidence provides support to the information content of dividend hypothesis. Moreover, I do not find evidence to reject the signalling hypothesis over the over investment hypothesis.