FIRM SIZE AND DIVIDEND POLICY OF EUROPEAN FIRMS: EVIDENCE FROM FINANCIAL CRISES

Abstract

This article investigates the impact of firm size and financial crises on cash dividends between 2001 and 2017 by employing 52,989 firm-year observations that represent 5,377 sample firms in eighteen European countries. By using the Tobit model, the findings show that smaller firms that have higher information asymmetry pay lower dividends than larger firms. Besides, small firms have a significantly negative impact on dividend payments when the agency costs are high, and investment opportunities are low. The picture differs when uncertainty arises. Specifically, smaller firms disgorge lower cash to their shareholders in the global financial crisis 2007-2009 (GFC) period. However, the impact of firm size on dividend policy does not differ by the European debt crisis 2010-2012 (EDC). In sum, investors should consider uncertainties and firm size to make more informed and prudent dividend decisions regarding which firms to invest.