Dividend Policy of European Banks

The majority of managers set themselves some long-term coefficient-objective for the distribution of dividends in relation to the profits of the period (target payout ratio). But they do not mechanically apply this ratio to each year’s profits as they try to avoid brusque fluctuations which could provoke movements in investors’ positions in imperfect markets. The purpose of this paper is to verify whether the dividend distribution policy of a company depends not only on profit but also on other factors, amongst which the both the theoretical and empirical literature point to the following: the profitability of the company, the stability of its earnings, its rate of growth and opportunities for investment and its financial and governing structure, highlighting the institutional aspects of the financial systems of the countries in which banks operate. The results obtained in the empirical test allow us to affirm that the policy of payouts does not depend solely on business profits. We observe that the economic and financial factors proposed by the theories mentioned, along with institutional factors, in practice determine the dividends of companies according to the structure of government which exists within organisations.