Are Fewer Firms Paying More Dividends? The International Evidence

J. of Multi. Fin. Manag.
16 (2006) 333–362
Are fewer firms paying more dividends?

The international evidence
Stephen P. Ferris a,∗ , Nilanjan Sen b , Ho Pei Yui b
aUniversity of Missouri-Columbia, MO, USA
b Nanyang Technological University, Singapore
Received 14 May 2005; accepted 28 August 2005
Available online 29 September 2005
Abstract
This study examines aggregate patterns of dividends and earnings for the two largest equity markets out-
side of the U.S. over 1990–2001. Although aggregate U.K. and Japanese dividends exhibit modest increases,
neither the magnitude nor the trend is comparable to the U.S. experience. Further, we note important differ-
ences in the level of aggregate dividends between keiretsu, independent and hybrid firms. This suggests the
importance of corporate organizational form in understanding Japanese dividend behavior over time. We find
evidence of dividend concentration in the U.K., but not in Japan. Fewer firms are paying more dividends, but
not everywhere. We find evidence of earnings concentration in the U.K., but such consolidation in Japan is
limited to independent firms. Our analysis offers mixed results for the relation between a firm’s earnings and
its ability to pay dividends. Few U.K. firms with negative earnings pay dividends while 73% of comparable
Japanese firms do. The U.K. economy rather than the Japanese, increasingly resembles a two-tier system
with a small set of very high earners providing a disproportional percentage of aggregate dividends. Finally,
our evidence suggests that the general stability of Japanese and U.K. payout practices is inconsistent with a
reduced propensity to pay dividends.
© 2005 Elsevier B.V. All rights reserved.
JEL classiﬁcation: G35; C23
Keywords: Dividends; Propensity to pay; Aggregate dividends
∗ Corresponding author. Tel.: +1 573 882 9905.

E-mail addresses: ferriss@missouri.edu (S.P. Ferris), sen@asu.edu (N. Sen).
1042-444X/$ – see front matter © 2005 Elsevier B.V. All rights reserved.
doi:10.1016/j.mulfin.2005.08.002
334 S.P. Ferris et al. / J. of Multi. Fin. Manag. 16 (2006) 333–362
1. Introduction
Fama and French (2001) document that the percent of U.S. firms paying cash dividends falls
from 67% of listed firms in 1978 to 21% in 1999. They argue that two effects might account
for this pattern. The first is that the character of exchange new lists has tilted towards firms with
lower profitability and stronger growth opportunities. These are precisely the characteristics of
firms that do not pay dividends. Fama and French, however, find that even after controlling for
such characteristics, firms appear to pay less dividends over time. They refer to this behavior as
a declining propensity to pay.
In spite of the changing composition of listed firms and a declining propensity to pay among
those U.S. firms that can be expected to pay dividends, DeAngelo et al. (2004) report that the
aggregate value of real dividends actually increases over time. They argue that the simultaneous
findings of an increase in aggregate dividends and a decrease in the number of dividend-paying
firms is evidence of a growing concentration in the supply of dividends. In short, they determine
that fewer U.S. firms are paying more dividends than previously. DeAngelo et al. further find that
the increase in dividends by the largest dividend payers overwhelms the reduction in dividends
attributable to the loss of many small dividend payers. They conclude that this concentration in
dividends is itself the result of an increasing consolidation in earnings among U.S. firms.
Yet, we do not know whether this pattern of a rising level of aggregate dividends accompanied
by an increasing dividend concentration and earnings consolidation is merely a U.S. phenomenon
or is part of more general trend in the global equity markets. What is the international experience
regarding dividend concentration and fewer firms paying a greater percentage of national aggregate
dividends? In this study, we examine these questions in two major international capital markets:
Japan and the U.K.
Our choice of these two countries in which to analyze aggregate dividend and earnings behavior
will deepen our understanding of corporate payout polices for a number of reasons. First, these
countries represent extremely important capital markets in the world economy. When our findings
for Japan and the U.K. are combined with those already appearing in the literature for the U.S.,
we are able to understand aggregate dividend and earnings behavior for over 75% of the value of
all globally traded equities.2
Laporta et al. (2000) find that international dividend policy is influenced by the nature of the
legal protections provided to minority shareholders. They contend that the effective protections
provided to shareholders in a common law legal environment allows minority equity investors
to extract more dividends from controlling shareholders than in civil law nations where such
protections are weaker. Laporta et al. report empirical findings that common law firms pay more
dividends than civil law countries. Although our sample is limited to only two countries and
thus generating a caveat regarding the extrapolation of our findings to other nations, nevertheless
over 4500 different firms are included in our empirical analysis. Hence, this study provides
implications regarding the potential of legal regime to influence long term aggregate dividend
behavior by comparing practices between the largest civil law economy and the largest common
law based economy outside of the U.S.
The presence of the keiretsu organizational structure in Japan allows us to examine the influence
that a bank-centered industrial grouping exerts on dividend policy. We then compare these findings
2 Dow Jones reports that the global value of traded equities in 2000 is US$ 23.6 trillion. The corresponding market
capitalizations for the U.S., Japan and the U.K. are US$ 12.8 trillion, US$ 2.6 trillion and US$ 2.3 trillion, respectively.
S.P. Ferris et al. / J. of Multi. Fin. Manag. 16 (2006) 333–362 335
to the U.K. where such industrial groups do not exist. Gerlach (1992) reports that Japanese keiretsu
shareholders have a longer investment horizon than U.S. investors, thus having less need for divi-
dends to signal short-run informational asymmetries between managers and shareholders. Nor are
dividends necessary to provide managerial discipline within keiretsu firms since bank monitoring
and cross equity holdings by group members provide this function. Rather, Dewenter and Warther
(1998) argue that Japanese dividends will be determined by the firm’s excess cash holdings, mak-
ing keiretsu dividend policy highly sensitive to corporate earnings. Thus, the selection of Japan
and the U.K. as our sample countries allows us to investigate how business organizational struc-
ture effects the need for dividends to reduce informational asymmetry and to provide managerial
monitoring.
The choice of these two countries also allows us to examine how aggregate corporate earnings
and dividends respond across different economic environments. During our sample period, Japan
was in recession following the collapse of its bubble economy in late 1990. Subsequent efforts
to revitalize the Japanese economy failed, leaving the country with falling equity price indices
and macroeconomic stagnation. Indeed, for the last 3 years of our sample, 1999–2001, growth
in Japanese real GDP averaged only 1.1%. By contrast, our sample period spans a more varied
macroeconomic environment in the U.K. The early 1990s represents a sample low, with real
GDP growth averaging less than 1% annually. For subsequent years in the sample, however, U.K.
real GDP increased and ultimately spiked at a growth rate of 4.7% in 1994. For the 1995–2001
sub-period, real GDP growth averaged slightly less than 3%.
Finally, our choice of these sample countries allows us to extend the dividend literature that
presently exists for these markets. Although there are a number of studies that examine dividend
policy in Japan (e.g., Prowse, 1990, 1992; Dewenter and Warther, 1998; Conroy et al., 2000)
and the U.K. (e.g., Poterba and Summers, 1985; Kaplanis, 1986; Ang et al., 1991; Leither and
Zimmerman, 1993; Benito and Young, 2001; Farinha, 2002; Rau and Vermaelen, 2002; Renneboog
and Trojanowski, 2005), they generally ignore trends in the percentage of dividend-paying firms
and the level of aggregate dividends. Our study addresses both of these issues.
Recent literature examines the nature of dividend policy in the U.K. and finds important
differences with that observed for U.S. firms. Ferris et al. (2006) show that the percentage of U.K.
firms paying dividends declines over 1988–2002, although the decline is smaller in magnitude
than that observed in the U.S. Renneboog and Trojanowski (2005) examine the pattern of both
dividends and repurchases in the U.K. during the 1990s and determine that the declining propensity
to distribute funds to shareholders documented by Fama and French (2001) does not hold for
U.K. firms. The present literature, however, does not examine whether the level of aggregate U.K.
dividends increases while the number of firms actually paying dividends falls. Our study addresses
this issue as well as analyzes changes in the degree of dividend and earnings concentration among
U.K. firms.
We find in un-tabulated results that the percentage of Japanese firms paying dividends remains
highly stable and averages 89.7% over our sample period. For the last year of our sample, nearly
89% of Japanese firms pay dividends. These findings suggest that the decline in the percentage of
dividend-paying firms reported by Fama and French (2001) for the U.S. does not occur in Japan.3
These results further lead us to examine trends in the level of aggregate dividends and the extent
to which such concentration in aggregate dividends and earning has changed over time in Japan.
3 This phenomenon might be partially explained by the Tokyo Stock Exchange (TSE) listing requirements regarding
dividends. Kato and Tsay (2002) report that the TSE requires Japanese companies to pay at least a minimal cash dividend
for each of the 3 years prior to listing and have strong prospects for continuing dividends following their listing.
Our results show that the level of aggregate dividends increase in both Japan and the U.K.,
but the magnitude of these increases is much smaller than that reported for the U.S. We find
that aggregate real dividends increase by 8.2% and 6.0% for Japan and the U.K., respectively.
DeAngelo et al. (2004) report a 22.7% increase for aggregate dividends in the U.S., although their
sample period differs from that examined in this study.
To further analyze this issue, we decompose our sample firms into categories based on industrial
grouping. In Japan, industrial groupings are common, requiring that we classify Japanese firms
into three categories—independent, hybrid and keiretsu. Industrial groupings, however, are not
present in the U.K. Consequently, there is only one category for U.K. firms. We observe in Japan
that there is an important difference in aggregate dividend levels between keiretsu and other firms.
We find that keiretsu firms reduce their level of aggregate dividends while those for hybrid and
independent firms increase.
We find no evidence of increasing dividend concentration among Japanese firms, but do detect
a change in the relative percentage of total dividends attributable to independent, hybrid and
keiretsu firms. The decline in the percentage attributable to keiretsu firms is consistent with the
argument of Dewenter and Warther (1998) that dividends for these firms are highly sensitive to
corporate earnings since they are not needed for signaling or monitoring functions. U.K. firms,
however, appear increasingly concentrated in the payment of dividends. Indeed, we find that by
2001, the top 100 U.K. dividend payers account for 88.3% of all dividends paid. Our findings for
U.K. dividend payment practices are consistent with the emergence of a two-tier system in the
supply of dividends, similar to that described for the U.S. by DeAngelo et al. (2004).
We obtain several interesting findings concerning earnings levels among our sample of Japanese
and U.K. firms. We find that there is relatively less earnings concentration in Japan. To the extent
that it does exist, earnings concentration is most evident within independent Japanese firms and
to a lesser degree among keiretsu firms. For U.K. firms, however, we find an increase in earnings
concentration over the sample period. In 1990, the earnings of the top six earners accounted
for 20% of total earnings. Averaging over the 1999–2001 sub-period, we find that these top six
earning firms now account for 51% of total U.K. earnings.
We also examine the relation between earnings and dividends. We find the relation between
corporate earnings and dividend payouts weakens for Japanese firms over our sample period and
that the percentage of firms with negative earnings that pay dividends increases between 1990 and
2001. The practices of U.K. firms, however, provide stronger support for earnings as the primary
determinant of dividends. We find an increase in the frequency with which firms pay dividends
among the top-end of the earnings distribution. Correspondingly, we observe that over time, U.K.
firms with negative earnings are less likely to pay dividends.
Finally, we test whether there is evidence of a declining propensity to pay dividends among
Japanese and U.K. firms. We estimate five different measures of aggregate dividend payment and
determine that dividend payouts tend to decline only marginally in Japan, while those in the U.K.
appear to be increasing slightly. We conclude that our evidence is not consistent with a global
pattern of a declining propensity to pay dividends.
The remainder of this paper is organized as follows. In the next section, we provide a description
of our data and sample construction methods, while in Section 3 we discuss trends in aggregate
dividend payment within the Japanese and U.K. capital markets. Section 4 contains our analysis of
dividend concentration. In Section 5, we examine the relation between earnings concentration and
the firm’s payment of dividends. Section 6 estimates measures of aggregate payout and examines
whether there is an international propensity to move away from dividends. We provide a brief
summary and a discussion of our findings in Section 7.
2. Data description and sample construction
We obtain empirical data for our analysis of Japanese and U.K. firms from the July 2002
edition of the Company Analysis database. Company Analysis is a Thompson Financial product
that provides financial data for over 1400 variables for 21,000 firms distributed across more than
70 nations.
Our data analysis extends from 1990 to 2001. Because of data availability on the Company
Analysis database, we begin our analysis only in 1990. The dates of our analysis also allow a
partial overlap with DeAngelo et al. (2004), thus making possible a direct comparison of dividend
levels between those in the U.S., Japan and the U.K. The total number of Japanese firms for which
data are available during this sample period is 973 while the corresponding figure for the U.K.
is 3551. Firms that are included on the Company Analysis database must satisfy the minimum
capitalization requirement of US$ 100 million. We exclude financial and utility firms from our
analysis because of the extensive regulatory oversight present in those industries.
A critical aspect of the Japanese corporate environment is the keiretsu. A keiretsu is typically
used to refer to two different sets of business relationships between Japanese firms. The first
are vertical grouping of upstream supplier firms and downstream distributors affiliated with a
large manufacturing or commercial enterprise. The second represents diversified groups, which
are horizontal keiretsu and consist of a commercial bank along with other financial institutions
joined with one or more trading companies as well as a range of large manufacturing companies.
Dewenter and Warther (1998) find that the dividend policy of keiretsu member firms is more
responsive to firm performance than that of either U.S. firms or independent Japanese firms.
Hence, keiretsu-affiliated firms are more likely to initiate, reduce or omit dividends in response
to changes in corporate performance. Thus, we separately examine patterns in dividends and
earnings by keiretsu, independent and hybrid firms.
We use the methodology of Dewenter and Warther (1998) and Ang and Constand (2004) to
make firm assignment to the keiretsu, independent and hybrid firm categories. Specifically, we
use the rankings contained in various editions of Industrial Groupings in Japan (IGJ) to classify
our sample firms as to category. Keiretsu firms are those firms that belong to one of the six large
horizontal keiretsu groups.4 Independent firms are those which are not listed as a subsidiary
company of these six keiretsu groups, are not listed in Nakatani (1984) as affiliated with a group,
and IGJ provides no indication of group ties. If a firm is neither an independent nor a keiretsu
affiliate, we classify it as a hybrid. Dewenter and Warther note that hybrid firms either have ties
to other industrial groups or only weak ties as defined by IGJ to a major keiretsu.
3. International trends in aggregate dividends and earnings
We begin our analysis of dividend and earnings behavior in the Japanese and U.K. capital
markets by examining the level of aggregate dividends. Specifically, we seek to determine how
the total value of dividends paid by firms in these nations changes over time.
In panel A of Fig. 1, we plot both aggregate nominal and real dividends for our sample of
Japanese firms. We observe a cyclical variability to these dividend levels that appears to track
general movements in the Japanese economy during the 1990s. Aggregate dividends seem to rise
4 Dewenter and Warther (1998) identify the six largest horizontal keiretsu as DKB, Fuyo (Fuji), Mitsubishi, Mitsui,
Sanwa and Sumitomo. They note that the size and scope of these groups distinguish them from all other industry groupings
in Japan.
Fig. 1. Time-series of aggregate dividends for Japanese and U.K. firms. Panel A: Aggregate nominal and real dividends
for Japanese firms (¥ billion). Panel B: Aggregate nominal and real dividends for U.K. firms (£ billion).
and fall with the Japanese economy during this decade. Although the value of aggregate dividends
climbs upward for the last 2 years of our sample, we are unable to conclude that aggregate Japanese
dividends are significantly increasing over our examination period. The Japanese experience with
aggregate dividends is not consistent with the nearly 23% increase in real dividends reported for
the U.S. by DeAngelo et al. (2004).
Panel B contains our results for U.K. firms. We note that aggregate dividends in the U.K.
increase over the early and mid 1990s, but then begin a gradual decline beginning in 1997. By
2001, the last year of our sample, aggregate dividends are at a level comparable to those at the start
of the sample period. This pattern, too, is contrary to the nearly linear upward trend in aggregate
dividends reported for the U.S. over the last 20 years.
The plots contained in Fig. 1 suggest a pattern of aggregate dividend behavior in these two
nations that is different from the U.S. Tables 1 and 2 offer additional details regarding these
trends for our sample of Japanese and U.K. firms. They also provide insight into how the Japanese
corporate organizational form influences dividend behavior.
Table 1
Aggregate nominal and real dividends for Japanese and U.K. firms
Panel A: Aggregate dividends for Japanese and U.K. firms
Year Japanese firms U.K. Firms
Nominal dividends Real dividends Aggregate dividend Nominal dividends Real dividends Aggregate dividend
(¥ billion) (¥ billion) payout ratio (%) (£ billion) (£ billion) payout ratio (%)
1990 1629.8 1629.8 25.6 17.4 17.4 53.8
S.P. Ferris et al. / J. of Multi. Fin. Manag. 16 (2006) 333–362

1991 1715.5 1661.6 26.1 18.0 17.0 75.3
1992 1867.6 1778.2 35.7 17.9 16.3 92.0
1993 1867.6 1755.7 57.3 18.5 16.6 63.4
1994 1683.5 1571.6 70.2 22.1 19.3 60.5
1995 1648.9 1541.2 67.2 24.3 20.6 58.7
1996 1774.5 1656.4 37.2 27.6 22.8 62.5
1997 1932.6 1773.2 33.6 29.7 23.8 55.8
1998 1946.7 1774.5 49.9 26.9 20.9 57.2
1999 1814.2 1659.3 111.5 28.2 21.5 58.8
2000 1698.7 1564.2 69.9 26.4 19.6 57.0
2001 1901.1 1763.5 27.5 25.3 18.4 276.0
Mean 51.0 80.9
Median 43.5 59.7
Standard deviation 25.6% 62.3%
Raw change: 1990–2001 16.6% 8.2% 45.6% 6.0%
Panel B: Aggregate dividends for Japanese firms by organizational form
Year Independent Hybrid Keiretsu
Nominal Real dividends Aggregate dividend Nominal Real dividends Aggregate dividend Nominal Real dividends Aggregate dividend
dividends (¥ billion) payout ratio (%) dividends (¥ billion) payout ratio (%) dividends (¥ billion) payout ratio (%)
(¥ billion) (¥ billion) (¥ billion)
1990 700.7 700.7 27.8 307.0 307.0 19.1 622.2 622.2 27.7
1991 740.1 716.9 28.7 334.5 324.0 19.2 640.8 620.7 28.4
1992 817.7 778.6 35.0 346.6 330.1 31.8 703.2 669.6 39.1
1993 804.4 756.2 50.7 349.8 328.9 52.5 713.4 670.6 70.7
1994 737.8 688.8 78.8 330.8 308.8 65.6 614.9 574.0 64.2
1995 739.3 691.0 73.6 311.9 291.5 69.8 597.8 558.7 59.7
1996 788.7 736.2 40.2 343.0 320.2 36.1 642.8 600.0 34.5
1997 863.0 791.8 33.6 369.5 339.1 23.4 700.1 642.3 43.4
1998 878.2 800.5 48.2 381.7 347.9 25.6 686.8 626.0 116.3
339
340
Table 1 (Continued )
Year Independent Hybrid Keiretsu
Nominal Real dividends Aggregate dividend Nominal Real dividends Aggregate dividend Nominal Real dividends Aggregate dividend
dividends (¥ billion) payout ratio (%) dividends (¥ billion) payout ratio (%) dividends (¥ billion) payout ratio (%)
(¥ billion) (¥ billion) (¥ billion)
1999 883.2 807.8 67.5 361.5 330.6 33.3 569.4 520.8 74.5
2000 810.7 746.5 101.3 352.2 324.4 29.2 535.7 493.3 126.6
2001 915.3 849.1 26.0 401.2 372.2 28.3 584.6 542.3 29.7
Mean 50.9 36.2 47.1
Median 44.2 30.5 41.2
Standard 24.2% 17.2% 50.6%
deviation
Raw change: 30.6% 21.2% 30.7% 21.3% −6.0% −12.8%
1990–2001
The aggregate dividend payout ratio equals the total annual dividend payments by all firms divided by the aggregate annual net income. Nominal dividends are converted to real
dividends (i.e., 1990 yen or pound sterling) by using the respective national consumer price indices contained in International Financial Statistics.
Table 2
Descriptive statistics regarding dividend payment by Japanese and U.K. firms, 1990 and 2001
Panel A: Descriptive statistics for dividend payments by Japanese and U.K. firms
Variable Japanese firms U.K. firms
1990 2001 Absolute (%) change 1990 2001 Absolute (%) change
1. Number of dividend-paying industrial 605 696 91 (+15.0%) 1458 759 −699 (−47.9%)
firms

2. Percent of all industrial firms that pay 95.7% 88.9% −6.8% 71.1% 54.0% −17.1%
dividends
3. Total nominal dividends (¥ billion) 1629.8 1901.1 271.3 (+16.6%) £17.4 billion £25.3 billion £7.9 billion (+45.6%)
4. Total real dividends (¥ billion, 1990 1629.8 1763.5 133.7 (+8.2%) £17.4 billion £18.4 billion £1.0 billion (+6.0%)
base)
5. Mean real dividend (¥ billion, per 2.7 2.5 −0.2 (−5.9%) £11.9 million £24.3 million £12.3 million (+103.6%)
dividend-paying firm)
6. Median real dividend (¥ billion, per 1.3 1.0 −0.2 (−18.4%) £1.1 million £1.8 million £0.7 million (+65.2%)
Panel B: Descriptive statistics for dividend payments by the organizational form of the Japanese firm
Variable Independent Hybrid Keiretsu
1990 2001 Absolute (%) 1990 2001 Absolute (%) 1990 2001 Absolute (%)
change change change
1. Number of dividend-paying industrial 308 414 106 (+34.4%) 90 88 207 194 −13 (−6.3%)
firms
2. Percent of all industrial firms that pay 97.2% 90.2% −7.0% 97.8% 91.7% −6.2% 92.8% 85.1% −7.7%
dividends
3. Total nominal dividends (¥ billion) 700.7 915.3 214.7 (+30.6%) 307.0 401.2 94.3 (+30.7%) 622.2 584.6 −37.6 (−6.0%)
4. Total real dividends (¥ billion, 1990 700.7 849.1 148.4 (+21.2%) 307.0 372.2 65.2 (+21.3%) 622.2 542.3 −79.9 (−12.8%)
base)
5. Mean real dividend (¥ billion, per 2.3 2.1 −0.2 (−9.8%) 3.4 4.2 0.8 (+24.0%) 3.0 2.8 −0.2 (−7.0%)
6. Median real dividend (¥ billion, per 1.0 0.8 −0.1 (−12.3%) 1.2 1.1 −0.2 (−13.1%) 1.6 1.5 −0.1 (−6.3%)
The sample is restricted to firms for which Company Analysis reports non-missing values of dividends.
341
In Table 1, we present the nominal and real aggregate dividend levels for our two sample capital
markets. In panel A, we see that the nominal value of aggregate Japanese dividends increases over
the sample period, growing by 16.6% from 1990 to 2001. When we deflate the 2001 dividends to
1990 price levels, we find that aggregate real dividends grow by only 8.2% over the 12 years of
our analysis. Dividends are not disappearing from the Japanese corporate environment, but rather
are modestly growing in magnitude. We also observe important variation in annual aggregate
dividend payouts. Japanese dividend payout ranges from a high of 111.5% to a low of 25.6%,
with a mean payout of 51%.5 The seemingly random fluctuation in the annual aggregate dividend
payout ratios contained in panel A are not consistent with a declining propensity to pay dividends
by Japanese firms. We examine this issue more completely in Section 5.3.
In panel B, we examine the level of aggregate Japanese dividends by firm organizational form.
We immediately observe that there is an important difference between keiretsu and other firms
regarding the level of aggregate dividends. The independent and hybrid firms experience growth
rates in real dividends that average over 21%, whereas keiretsu firms suffer a decline in aggregate
real dividends of 12.8%. Keiretsu firms also exhibit greater variability in the total amount of
dividends distributed to investors than either independent or hybrid firms. The standard devia-
tion of the aggregate dividend payout ratios for keiretsu firms is 50.6% compared to 24.2% for
independent firms and 17.2% for hybrids. These findings are consistent with the contention of
Dewenter and Warther (1998) that keiretsu dividend policy is more sensitive to earnings per-
formance than non-keiretsu firms and that keiretsu managers will adjust dividend policy more
quickly than managers of U.S. or independent Japanese firms.
Comparable to our findings for the overall Japanese sample, panel A shows that aggregate
dividends paid by U.K. firms increase over our sample period. Nominal U.K. dividends rise by
nearly 46%, but after adjusting for price level changes, the growth in real dividends is only 6%.
Annual aggregate dividend payout ratios for U.K. firms demonstrate greater variability than that
of Japanese firms, regardless of firm category. But when we exclude the year 2001, which is a
recessionary year in the U.K., the standard deviation of aggregate U.K. payout ratios declines
to 11.12%, which is less than half of that observed for Japanese firms. It is also less than the
standard deviation estimated separately for each of the three organizational forms of Japanese
firms.
These results are consistent with the ability of shareholders in common law countries to extract
higher dividends from their managers and the desire of managers to engage in more stable dividend
payout policies by smoothing the level of such distributions over time. Similar to our results for
Japanese firms, the time-series of U.K. aggregate dividend payout ratios fails to suggest a declining
propensity to pay.
In Table 2, we present additional descriptive statistics regarding the level of aggregate dividends
paid by Japanese and U.K. firms. In panel A, we notice that the number of Japanese firms paying
dividends increases by 15% over the sample period. This result contrasts with that of Fama and
French (2001) for the U.S. and that reported by Ferris et al. (2006) for the U.K. Panel B shows,
however, that this increase is completely attributable to the behavior of independent firms. The
number of dividend payers among hybrid and keiretsu firms actually decreases. We also find that
the value of the mean (median) dividend for Japanese firms declines over time. This decrease in
both the mean and median dividend is fairly consistent across Japanese firm type, with only the
mean dividend for hybrid firms demonstrating any increase.
5 Payout in excess of 100% is attributable to the presence of negative earnings by sample firms for that year.
Consistent with Ferris et al. (2006), we find that both the number and percentage of U.K.
firms paying dividends decrease over our sample period.6,7 Yet, we note that the mean (median)
dividend paid by U.K. firms increases. This result of fewer firms paying a larger average dividend
suggests that we should anticipate evidence of concentration in the supply of dividends offered
by U.K. firms in our subsequent analysis.
We conclude from this initial examination that Japanese and U.K. aggregate dividends have
increased since 1990, but that this increase is not monotonic. Rather, the pattern in aggregate div-
idends for these sample countries appears to track their respective macroeconomies. The cyclical
nature of aggregate Japanese dividends aligns with the recession of 1990–1995, the weak recovery
of 1995–1996, the reoccurrence of recession during 1997–1998 and finally the modest growth
beginning in 1999 for the last years of our sample. Similarly, the decline in aggregate U.K. divi-
dends which began in 1997 corresponds to a slowing of the U.K. economy in the late 1990s and
a collapse in its stock market in 2000.
The tax laws of Japan and the U.K. do not provide much insight into the aggregate div-
idend patterns that we observe for these sample countries. Since 1973, the U.K. has used a
partial imputation system whereby part of the firm’s payment of corporate income taxes is
considered when calculating a shareholder’s tax liability on dividends. Hence, the tax treat-
ment of dividends is more favorable in the U.K. than in the U.S., suggesting that dividends
should be relatively more attractive in the U.K. than our findings indicate. Dewenter and
Warther (1998) state that the Japanese tax code does not appear to penalize dividends. They
note that individuals in Japan can either pay a 20% withholding tax on dividends and include
them as ordinary income or pay a flat 35% withholding tax and not include them in ordinary
income.
Our analysis reveals several other interesting patterns in aggregate dividend payment across
these two national capital markets. We find that there are important differences in the level of
aggregate Japanese dividends between keiretsu and other firms, with keiretsu firms reducing their
aggregate dividends over our sample period. This result is consistent with findings reported by
other researchers that keiretsu policy is more sensitive to corporate earnings than those of other
Japanese firms. An examination of the time-series of aggregate dividend payout ratios fails to sug-
gest the emergence of a declining propensity to pay among either Japanese or U.K. firms. We find
an increase in the number of Japanese firms paying dividends, but note that this increase is com-
pletely attributable to independent firms. The average Japanese dividend appears to be decreasing
in size. In the U.K., however, we observe consistent evidence of growing dividend concentration.
The number of U.K. firms paying dividends declines by nearly 48% since 1990 while the average
dividend increases. There indeed appears to be fewer U.K. firms paying dividends while those
that do pay are paying increasingly larger dividends.
6 Ferris et al. (2006) test several hypotheses regarding why the number of dividend paying firms in the U.K. declined
during the 1990s. They fail to find that repurchases increased and became a substitute for dividends. Nor do they find
that tax law, including the 1997 changes to U.K. tax code, significantly influenced dividend practices by U.K. firms. They
conclude that the catering incentives shifted during the 1990s and that the Baker and Wurgler (2004a,b) dividend premium
successfully explains much of the propensity to pay dividends observed for U.K. firms.
7 Similar to the findings reported in Ferris et al. (2006), Renneboog and Trojanowski (2005) determine that few U.K.
firms have an active repurchase program. They further report that the amount of funds transferred to U.K. shareholders
is considerably smaller from repurchases when compared with dividends. Nor is repurchase activity likely to explain
dividend behavior in Japan. Repurchase of stock by issuing firms has only recently become legal in Japan. Through a
series of revisions to the Japanese Commercial Code beginning in 1994, Japanese firms were first authorized to buy back
their equity issues.
4. Concentration in the payment of dividends
In this section, we more directly examine the extent to which dividend payment might be
concentrated among Japanese or U.K. firms. DeAngelo et al. (2004) find a high and increasing
concentration of dividends among U.S. firms, with fewer firms accounting for an increasingly
large percentage of total dividends paid. Our analysis in this section will determine whether a
similar phenomenon exists among either Japanese or U.K. firms.
4.1. Dividend rankings
In Table 3, we separately rank in groups of 100 the dividend-paying firms by the level of
cash dividends paid in 1990 and 2001. In panel A, we present the percent of dividends paid by
Japanese firms stratified by the yen value of total dividends paid. We observe that the 100 largest
dividend payers account for nearly 63% of all Japanese dividends paid in 1990. There is virtually
no change in this percentage for the last year of our sample, 2001. When we expand our analysis
to the top 200 firms, approximately 78% of aggregate dividends are accounted for in both 1990
and 2001. These initial findings suggest that the level of dividend concentration has remained
nearly constant over our sample period.
Although the top 100 dividend payers account for a consistently high percent of aggregate
Japanese dividends, we detect a change in the relative percentage of total dividends attributable
to independent, hybrid and keiretsu firms. Independent and hybrid Japanese firms increase their
share of total dividends over the sample period at the expense of keiretsu-affiliated firms. Among
the top 100 dividend payers in 1990, keiretsu firms account for 25% of all Japanese dividends and
are the single largest source of such payouts. But by 2001, keiretsu firms account for only 19.4%
of total dividends. The independent firms contribute 27.4% of all dividends paid and as of 2001,
serve as the largest provider of dividends to Japanese investors.
In panel B, we present additional findings on dividend concentration using the actual yen value
of the dividends paid rather than the relative percentage of total dividends paid. We see that most
of the increase in aggregate dividends is attributable to the top 100 dividend payers, although
the smallest group of dividend payers also increases its total payouts. Further, the increase in
aggregate dividends paid over the sample period results from increases in total payouts by the
independent and hybrid firms. Combined, these two categories of firms increase their aggregate
dividends by over ¥150 billion, while keiretsu firms reduce their total dividends by nearly ¥80
billion between 1990 and 2001.
The results in panels A and B demonstrate the greater sensitivity of dividend policy by keiretsu
firms relative to other Japanese firms. Because of the keiretsu’s organizational structure, there is
less need for dividends to address the information asymmetry and agency conflicts present in the
corporate form. Members of a keiretsu are highly transparent to each other through reciprocal
equity ownership, a common lender and interlocking business relationships. Thus, the level of
information asymmetry is reduced and there is less need for dividends to signal the firm’s earnings
quality. Further, as noted by Prowse (1992), the concentrated equity ownership of keiretsu firms
by financial institutions allows for a more direct monitoring of managers, thus making redundant
the payment of dividends as a means to discipline managers.
Panel C contains our findings for dividend concentration among U.K. firms. Unlike the results
for Japan, we obtain strong evidence of increasing dividend concentration among U.K. firms. The
top 100 dividend payers in 1990 account for 72% of all dividends paid. By 2001 that value rises
to 88.3%. DeAngelo et al. (2004) report comparable values, with the top 100 dividend payers in
Table 3
Concentration of total dividends paid by Japanese and U.K. firms in 1990 and 2001
Panel A: Concentration of total yen dividends paid by Japanese firms based on the percent of total dividends
Dividend Percent of total dividends

ranking
1990 2001
All Independent Hybrid Keiretsu All Independent Hybrid Keiretsu
Top 100 62.7 24.6 13.0 25.0 63.2 27.4 16.4 19.4
101–200 15.8 6.7 2.6 6.5 15.7 7.8 1.9 5.9
201–300 9.4 4.6 1.2 3.6 8.8 4.9 1.2 2.7
301–400 6.1 3.6 1.0 1.5 5.7 3.7 0.7 1.3
401–500 3.9 2.1 0.7 1.1 3.5 2.5 0.4 0.7
501–600 2.0 1.3 0.2 0.5 2.2 1.4 0.3 0.5
601–696 >0.0 0.0 >0.0 >0.0 0.8 0.6 0.1 0.2
Total for all 100.0 43.0 18.8 38.1 100.0 48.1 21.1 30.7
firms
Number of 605 308 90 207 696 414 88 194
firms
Panel B: Concentration of total yen dividends paid by Japanese firms by the yen amount of real dividends
Dividend Real dividends (¥ billion, 1990 base)

ranking
1990 2001
Top 100 1021.4 401.5 212.0 407.9 1115.2 482.8 289.5 342.9
101–200 256.9 108.7 42.6 105.6 276.5 138.1 33.6 104.7
201–300 153.6 75.5 20.1 58.0 155.3 86.1 21.5 47.6
301–400 99.8 59.0 16.2 24.6 101.0 64.8 13.0 23.2
401–500 64.3 34.5 12.0 17.9 62.5 43.2 7.5 11.8
501–600 33.2 21.5 3.9 7.7 38.4 24.2 5.4 8.8
601–696 0.6 0.0 0.1 0.5 14.7 9.7 1.7 3.3
Total for all 1629.8 700.7 307.0 622.2 1763.5 849.1 372.2 542.3
firms
Number of 605 308 90 207 696 414 88 194
firms
Panel C: Concentration of total pound dividends paid by U.K. firms in 1990 and 2001
Dividend Percent of total dividends Real dividends (£ million, 1990 base)

ranking
1990 2001 1990 2001
Top 100 72.0 88.3 12509 16245

101–200 14.0 6.8 2430 1245
201–300 5.4 2.6 939 484
301–400 2.9 1.3 507 231
401–500 1.8 0.6 307 118
501–600 1.2 0.3 206 55
601–700 0.8 0.1 143 24
701–800 0.6 >0.0 106 4
801–900 0.4 75
901–1000 0.3 54
1001–1100 0.2 39
1101–1200 0.2 28
Dividend Percent of total dividends Real dividends (£ million, 1990 base)
ranking
1990 2001 1990 2001
1201–1300 0.1 18
1301–1400 <0.1 8
1401–1458 >0.0 1
Total for all 100.0 100.0 17370 18406
firms
Number of 1458 759
firms
Firms are ranked from the largest to smallest total dividends paid in each year. Concentration within each ranking is
measured by the percent of total dividends and the yen or pound amount of real dividends. For Japanese firms in 1990,
the row corresponding to firms ranked 601–700 has five firms because there are 605 dividend payers. For the U.K. firms
in 2001, the row corresponding to firms ranked from 701 to 800 has 59 firms because there are 759 dividend payers.
the U.S. accounting for 81.8% of all dividends paid in 2000. When we consider the 200 largest
dividend payers, we find that they account for over 95% of all U.K. dividends. We also observe
that the top 100 firms increase the value of their dividends by £3736 billion relative to 1990.
Further, the smallest dividend payers in 1990 stopped paying dividends in 2001, with the other
dividend payers substantially reducing their level of payouts. These results show that the increase
in aggregate dividends observed for the U.K. occurs solely among the very largest dividend payers,
with all others either reducing or eliminating their dividends.
4.2. Cross-sectional analysis of dividend payments
We further investigate the nature of dividend concentration by constructing a cross-sectional

distribution of dividends in 1990 and 2001 for our sample of Japanese and U.K. firms. In panel
A of Table 4 , we stratify the Japanese firms across the range of real dividends paid. This range
extends from less than ¥0.49 billion to ¥30 billion and above. In the bottom section of panel A, we
separate our firms into high-end and low-end sub-samples based on the dividend distribution. We
immediately observe that the number of firms contained in these two sub-samples varies little over
the sample period. This is consistent with our earlier conclusion that concentration in aggregate
Japanese dividends is stable over our sample period. In the four rightmost columns of panel A, we
perform a similar analysis for the yen value of dividends paid. We find that the aggregate value
of dividends paid by the sub-sample of the smallest dividend payers (i.e., less than ¥15 billion)
increases since 1990, while that distributed by the largest dividend payers (i.e., in excess of ¥15
billion) declines. We conclude that increasing dividend concentration among large firms does not
characterize the Japanese capital market.
In panels B–D, we explore the issue of dividend concentration separately for each of the three
organizational forms of Japanese firms. For the independent and keiretsu firms, we find that the
total dividends paid by the sub-sample of the largest dividend payers decrease over the sample
period. Further, there is little change in the absolute number of large dividend payers among either
the keiretsu or independent categories. The only suggestion of strengthening concentration occurs
for the hybrid firms, where the total dividends paid by the sub-sample of the largest dividend payers
increase from ¥127 billion to ¥193 billion. Yet for these hybrid firms, the total dividends paid by
the sub-sample of the smallest dividend payers remain essentially unchanged.
Table 4
Number of firms and real dividend payments in 1990 and in 2001 for firms that paid given amounts of real dividends
Panel A: Number of firms and real dividend payments for all Japanese firms that paid given amounts of real dividends
Range of real dividend Number of firms Number of firms Change from Change from Real dividends Real dividends Change from Change from
payment (¥ 1990 billion) 1990 2001 1990 to 2001 1990 to 2001 (%) 1990 2001 1990 to 2001 1990 to 2001 (%)
A. ¥30 billion or more 6 4 −2 −33.3 277 235 −42 −15.1
B. ¥20–29.99 billion 2 6 4 200.0 44 135 91 206.8
C. ¥15–19.99 billion 8 4 −4 −50.0 136 69 −67 −49.1
D. ¥10–14.99 billion 10 22 12 120.0 122 268 145 118.7
E. ¥5–9.99 billion 45 47 2 4.4 318 334 15 4.8

F. ¥1–4.99 billion 270 270 0 0.0 580 564 −16 −2.8
G. ¥0.5–0.99 billion 156 141 −15 −9.6 116 101 −15 −12.7
H. Less than ¥0.49 billion 108 202 94 87.0 35 56 21 59.4
Total 605 696 91 15.0 1630 1764 134 8.2
¥15 billion and above 16 14 −2 −12.5 458 440 −17 −3.8

Less than ¥15 billion 589 682 93 15.8 1172 1323 151 12.9
Panel B: Number of Japanese hybrid firms and their real dividend payments
A. ¥30 billion or more 2 2 0 0.0 90 127 38 42.2
B. ¥20–29.99 billion 1 3 2 200.0 21 66 45 218.6
C. ¥15–19.99 billion 1 0 −1 −100.0 16 0 −16 −100.0
D. ¥10–14.99 billion 3 5 2 66.7 36 67 31 85.8
E. ¥5–9.99 billion 6 3 −3 −50.0 44 20 −25 −55.8
F. ¥1–4.99 billion 40 34 −6 −15.0 79 72 −7 −8.8
G. ¥0.5–0.99 billion 23 18 −5 −21.7 16 13 −3 −20.7
Total 90 88 −2 −2.2 307 372 65 21.3
¥15 billion and above 4 5 1 25.0 127 193 67 52.6

Less than ¥15 billion 86 83 −3 −3.5 180 179 −1 −0.8
Less than ¥1 billion 37 41 4 10.8 21 20 −1 −4.2
Panel C: Number of Japanese independent firms and their real dividend payments
A. ¥30 billion or more 4 2 −2 −50.0 188 108 −80 −42.4
B. ¥20–29.99 billion 0 2 2 − 0 49 49 –
C. ¥15–19.99 billion 1 2 1 100.0 18 34 16 89.7
D. ¥10–14.99 billion 2 7 5 250.0 23 87 63 271.4
E. ¥5–9.99 billion 20 24 4 20.0 133 175 42 32.0
F. ¥1–4.99 billion 122 150 28 23.0 249 294 45 18.1
G. ¥0.5–0.99 billion 90 93 3 3.3 67 66 −1 −1.6
Total 308 414 106 34.4 701 849 148 21.2
347
348
Range of real dividend Number of firms Number of firms Change from Change from Real dividends Real dividends Change from Change from
payment (¥ 1990 billion) 1990 2001 1990 to 2001 1990 to 2001 (%) 1990 2001 1990 to 2001 1990 to 2001 (%)
¥15 billion and above 5 6 1 20.0 206 192 −14 −6.9
Panel D: Number of Japanese keiretsu firms and their real dividend payments
A. ¥30 billion or more 0 0 0 – 0 0 0 –
B. ¥20–29.99 billion 1 1 0 0.0 23 20 −3 −13.1
C. ¥15–19.99 billion 6 2 −4 −66.7 102 35 −67 −65.5

D. ¥10–14.99 billion 5 10 5 100.0 63 114 51 80.8
E. ¥5–9.99 billion 19 20 1 5.3 141 139 −2 −1.6
F. ¥1–4.99 billion 108 86 −22 −20.4 253 199 −54 −21.4
G. ¥0.5–0.99 billion 43 30 −13 −30.2 32 22 −10 −31.8
Total 207 194 −13 −6.3 622 542 −80 −12.8
¥15 billion and above 7 3 −4 −57.1 125 55 −70 −55.7

Less than ¥15 billion 200 191 −9 −4.5 497 487 −10 −2.1
Less than ¥1 billion 68 75 7 10.3 40 36 −5 −11.8
Panel E: Number of U.K. firms and their real dividend payments
Range of real dividend Number of firms Number of firms Change from Change from 1990 Real dividends Real dividends Change from Change from 1990
payment (£ 1990 million) 1990 2001 1990 to 2001 to 2001 (%) 1990 2001 1990 to 2001 to 2001 (%)
A. £500 million or more 3 6 3 100.0 2080 6721 4641 223.1
B. £400–499.9 million 3 3 0 0.0 1353 1325 −28 −2.1
C. £300–399.9 million 2 3 1 50.0 718 1064 346 48.2
D. £200–299.9 million 4 4 0 0.0 1034 890 −145 −14.0
E. £100–199.9 million 21 23 2 9.5 3125 3262 137 4.4
F. £80–99.9 million 14 7 −7 −50.0 1245 631 −614 −49.3
G. £60–79.9 million 19 13 −6 −31.6 1280 907 −373 −29.2
H. £40–59.9 million 37 12 −25 −67.6 1797 549 −1248 −69.5
I. £20–39.9 million 63 38 −25 −39.7 1750 1090 −660 −37.7
J. £10–19.9 million 70 51 −19 −27.1 991 716 −275 −27.8
K. £5–£9.9 million 111 79 −32 −28.8 775 575 −200 −25.8
L. £1–4.9 million 423 232 −191 −45.2 969 568 −401 −41.4
M. Less than £1 million 688 288 −400 −58.1 252 109 −143 −56.8
Total 1458 759 −699 −47.9 17370 18406 1036 6.0
£100 million and above 33 39 6 18.2 8311 13262 4951 59.6

Less than £100 million 1425 720 −705 −49.5 9060 5144 −3915 −43.2
Less than £5 million 1111 520 −591 −53.2 1221 677 −544 −44.6
A firm is only included if Company Analysis contains non-missing values for dividends and net income for the years in our analysis. Real dividends are nominal dividends
converted to 1990 values by using the respective national consumer price indices contained in International Financial Statistics.
The separate results presented in panels B–D do not provide evidence of a substantial
increase in the concentration of dividend payments for any form of Japanese firm. These
findings for the individual organizational forms of Japanese firms confirm our earlier results
that the increase in the level of aggregate dividends is not accompanied by growing dividend
concentration.
We present the cross-sectional distribution of dividends for U.K. firms in panel E. Unlike
our results for Japan, we observe important shifts in the pattern of dividend payments for
U.K. firms. Using £100 million as a threshold to construct sub-samples of high and low-
end dividend payers, we find that the frequency of small dividend payers (i.e., less than
£100 million) declines by approximately half since 1990. But more importantly, the largest
dividend payers (i.e., £100 million or more) increase the value of dividends they pay from
£8311 million to £13,262 million over our sample period. For the very largest dividend pay-
ers, with payments in excess of £500 million annually, the aggregate value of their dividends
increases from £2080 million in 1990 to £6721 million in 2001. Small dividend payers, how-
ever, decrease the value of their aggregate dividends from £9060 million to £5144 million,
representing a reduction of 43%. The results in panel E show that the increase in the aggre-
gate value of dividends among U.K. firms occurs among the largest dividend payers, with
the small payers reducing the amount of their dividends. These results further confirm our
conclusions from Table 3 that dividend concentration in the U.K., like that in the U.S., is
increasing.
Our analysis in this section fails to find significant changes in the level of dividend concentration
in Japan during our sample period, although the relative percentage of aggregate dividends paid
by independent firms increases. This result is consistent with the increase in the number of
independent firms paying dividends that we report in Section 3. We determine, however, there is
growing dividend concentration within the U.K., especially among the top 100 U.K. dividend-
paying firms. A cross-sectional analysis of U.K. dividend payments further shows the small
dividend payers reducing the value of their dividends. These findings for the U.K. are consistent
with the emergence of a two-tier system in the supply of dividends similar to that described for
the U.S. by DeAngelo et al. (2004).
5. The relation between dividends and earnings
Other researchers such as Lintner (1956), Fama and Babiak (1968) and DeAngelo et al. (2004)
find that corporate earnings serve as the primary determinant of dividends. This suggests that any
concentration of dividends observed in either the Japanese or U.K. capital market might be due
to a corresponding consolidation in earnings. In this section, we examine the relation between
dividends and earnings and the extent to which corporate earning power might explain the dividend
payout practices of our sample firms. We begin our analysis with an overview of trends in the
aggregate earnings for Japanese and U.K. firms over the sample period.
5.1. Earnings trends in Japan and the U.K.
In panel A of Fig. 2, we present a time-series of earnings for Japanese firms. Japanese earnings
demonstrate a cyclical variability comparable to that observed for aggregate dividends in Fig. 1. We
notice that earnings demonstrate a sharp upturn beginning in 1999. Further analysis (unreported)
shows that this upwards shift is attributable to recent earnings growth by independent and keiretsu
firms.
Fig. 2. Time-series of aggregate earnings for Japanese and U.K. firms. Panel A: Aggregate nominal and real earnings for
Japanese firms (¥ billion). Panel B: Aggregate nominal and real earnings for U.K. firms (£ billion).
We present our findings for U.K. firms in panel B. We find that earnings in the U.K. rise over
the first half of the sample period, but begin to decline in 1997. U.K. earnings sharply decline in
2000, which also marks the onset of recession in the U.K.
5.2. Earnings for ﬁrms based on dividend rankings
We begin our analysis of earnings concentration with the creation in Table 5 of a cross-
sectional distribution of real earnings for our sample firms. In panel A, we present our findings for
the percentage of earnings attributable to various Japanese firms. We observe that the percent of
aggregate earnings accounted for by the top 100 dividend payers increases from 63.4% in 1990 to
73.7% in 2001. When we consider the top 200 dividend payers, the earnings concentration rises
from 77.9% to 86.7%. Panel A also reveals that this growth in earnings attributable to the top
dividend-paying firms is not a generalized behavior among Japanese firms, but is driven by the
performance of independent firms. The share of earnings produced by the 100 largest dividend-
Table 5
Concentration of earnings of Japanese and U.K. firms that paid dividends in 1990 and 2001
Panel A: Concentration of earnings among Japanese firms represented by the percent of total earnings
Dividend ranking Percent of total earnings of dividend-paying industrial firms

1990 2001
Top 100 63.4 21.1 19.8 22.6 73.7 35.3 17.2 21.2
101–200 14.5 6.4 2.2 5.9 13.0 7.6 1.9 3.5
201–300 8.6 4.1 1.1 3.4 5.9 2.5 1.0 2.4
301–400 7.2 4.0 1.3 1.9 4.1 3.3 0.1 0.8
401–500 4.0 2.3 0.7 1.0 1.6 1.0 0.2 0.4
501–600 2.2 1.7 0.2 0.3 1.1 0.9 0.1 0.1
601–696 0.0 0.0 0.0 0.0 0.6 0.9 0.0 −0.3
Total for all firms 100.0 39.5 25.3 35.2 100.0 51.4 20.5 28.1
Number of firms 605 308 90 207 696 414 88 194
Panel B: Concentration of earnings among Japanese firms represented by the yen amount of real earnings
Dividend ranking Real earnings (¥ billion, 1990 base)
1990 2001
Top 100 4029.3 1339.9 1255.8 1433.6 4817.0 2307.4 1125.3 1384.3
101–200 921.9 407.8 137.6 376.4 848.1 496.3 124.7 227.1
201–300 546.6 263.4 69.1 214.1 385.3 160.1 67.4 157.9
301–400 459.2 251.4 84.2 123.6 270.6 212.9 8.2 49.5
401–500 255.5 144.2 45.9 65.4 103.6 65.3 11.4 27.0
501–600 142.4 105.7 15.0 21.7 74.0 59.2 8.9 5.9
601–696 0.7 0.0 −0.4 1.1 36.1 56.9 −2.9 −17.9
Total for all firms 6355.6 2512.4 1607.4 2235.8 6534.7 3358.2 1342.9 1833.6
Number of firms 605 308 90 207 696 414 88 194
Panel C: Concentration of earnings among U.K. firms in 1990 and 2001
Dividend ranking Percent of total earnings of Real earnings

dividend-paying firms (£ million, 1990 base)
1990 2001 1990 2001
Top 100 73.1 82.0 26801 13335

101–200 13.8 11.6 5045 1886
201–300 5.2 2.9 1913 474
301–400 3.1 2.2 1121 358
401–500 0.6 1.2 219 196
501–600 0.7 0.5 241 84
601–700 1.0 −0.4 349 −65
701–800 0.8 −0.1 291 −12
801–900 0.7 253
901–1000 0.3 118
1001–1100 0.3 100
1101–1200 0.2 87
1201–1300 0.3 95
Dividend ranking Percent of total earnings of Real earnings
dividend-paying firms (£ million, 1990 base)
1990 2001 1990 2001
1301–1400 0.1 31
1401–1458 <0.0 −4
Total for all firms 100.0 100.0 36661 16255
Number of firms 1458 759
A firm is included only if Company Analysis reports dividends and net income (after tax, extraordinary items and other
after tax items) for the years in our analysis. A firm’s dividends and earnings are the amounts reported for the fiscal years
ending in 1990 or 2001. For Japanese firms in 1990, the row corresponding to firms ranked from 601 to 700 has five firms
because there are 605 dividend payers. For U.K. firms in 2001, the row corresponding to firms ranked from 701 to 800
has 59 firms because there are 759 dividend payers.
paying independent firms increases from 21.1% in 1990 to 35.3% by the end of our sample period.
The corresponding percentages for the top 100 hybrid and keiretsu firms change very little and
actually decline slightly. Panel A’s results indicate that the increase in earnings concentration
observed for Japanese firms is most likely due to earnings growth by independent firms. This
result might be explained by the nature of independent firms. These firms are most able to exploit
market opportunities and suffer less from the managerial entrenchment of keiretsu firms. The
lower concentration of earnings observed for keiretsu firms might be due more to their ability to
divert resources and to cross-subsidize member units than their relative slowness in responding
to market conditions.
Panel B presents our analysis of earnings concentration among Japanese dividend payers using
the yen value of earnings. We observe that the yen value of earnings accounted for by the top 100
dividend payers rises from ¥4029.3 billion in 1990 to ¥4817.0 billion in 2001. This increase of
¥788 billion in real earnings, however, occurs only for the independent firms. The keiretsu and
hybrid firms among the top 100 dividend payers suffer a decrease in their real earnings for 2001.
Indeed, when we aggregate earnings across all the dividend ranking ranges, we observe that both
the hybrid and keiretsu firms experience lower total earnings.
Our results concerning earnings concentration in the U.K. are contained in panel C. We observe
that the top 100 dividend payers account for 73.1% of total earnings in 1990, but 82% of total
earnings in 2001. When we consider the top 200 dividend payers, the corresponding value rises
from 86.9% to 93.6%. In the rightmost columns of panel C, we present the level of real earnings.
We observe that the level of real earnings declines from 1990 to 2001 for every category of
dividend payer. Indeed, we note that real earnings summed across all U.K. firms decline from
£26,801 million in 1990 to £13,335 million in 2001. This decline in the level of earnings is likely
due to the reduced profitability of U.K. firms during the recession which began in 2000 and ended
in 2002.
Table 5 shows that earnings concentration modestly increases among Japanese firms, but that
this increase is largely attributable to the performance of independent firms. The hybrid and
keiretsu firms experience a decline in their earnings and little change in the relative contribution
to total earnings. U.K. firms demonstrate a strong growth in earnings attributable to the largest
dividend payers while the smaller dividend-paying firms report zero or negative earnings for 2001.
We conclude that the results in Table 5 suggest an increasing concentration in earnings among
U.K. firms to accompany the dividend concentration reported in Table 3.
5.3. Pooled earnings distribution
In Table 6 , we present a cross-sectional distribution of earnings for both dividend payers

and non-payers among the sample Japanese and U.K. firms. Panel A shows that there is a slight
increase in the number of firms appearing in the top two earnings ranges for Japanese firms over
our sample period. In spite of this increase, however, a suggestion of increasing concentration
in earnings among Japanese firms, appears in the five rightmost columns. The increase in real
earnings for firms located in the two top earnings ranges accounts for 107.9% of the increase in
earnings for all firms with positive earnings in 2001. We further find that the percentage of total
earnings provided by the very largest earners rises from 25.4% in 1990 to 40.7% in 2001. We
find stronger results when we use the average annual earnings over the 1999–2001 sub-period,
with the percentage of total earnings provided by the largest earners increasing to nearly 54%. In
1990, the two top earnings categories account for 37.1% of earnings, but jump to 78.7% over the
1999–2001 sub-period. Thus, our results regarding earnings concentration in Japan are not due
to our choice of 2001 as the sample period end date. Indeed, our choice of 2001 yields a smaller
estimate of the growth in earnings concentration than that using a multi-year average.
In panels B–D, we perform a similar analysis for the individual categories of Japanese firms. We
observe interesting differences across firm categories concerning changes in the level of aggregate
earnings and the concentration of these earnings. The independent firms enjoy the largest increase
in aggregate earnings among the three categories of Japanese firms. Aggregate earnings for all
independent firms increase by ¥741 billion, while that for independent firms with positive earnings
grow by ¥1544 billion. Earnings growth among independent firms occurs not at the top range of
earners, but within the range immediately below, for firms with earnings between ¥50 billion and
¥100 billion. Real earnings increase by ¥760 billion for firms located in this range compared to
only ¥371 billion for the very largest earners. Nevertheless, the top two earnings ranges account
for 30.3% of aggregate earnings for independent firms in 1990, and increases to 58.1% in 2001.
Our results regarding concentration remain robust even after changing our benchmark from 2001
to a 3-year average calculated over the 1999–2001 sub-period. Indeed, the various panels of
Table 6 reveal more concentration in earnings when we use the sub-period averages rather than
2001 values as the benchmark.
In panel C, we observe that hybrid firms experience a decline in real earnings between 1990
and 2001, whether we consider aggregate earnings for the entire sample or limit our analysis to
hybrid firms with positive earnings. Further, there is little change in the concentration of earnings
by hybrid firms. The top earners account for 56.6% of all earnings in 1990 and represent only
slightly more in 2001, with 60% of aggregate earnings. In 2001, the keiretsu firms place five firms
in the top category of earners compared to none in 1990. This suggests some increase in earnings
concentration among keiretsu firms. Earnings by the top earners among keiretsu firms represent
over 40% of all earnings in 2001 compared to a value of zero in 1990. In spite of this increase
in earnings concentration, panel D also shows that keiretsu firms suffer from declining levels of
aggregate earnings. Between 1990 and 2001, earnings for keiretsu firms fall by ¥423 billion.
In panel E, we examine the earnings distribution for U.K. firms. We observe that there is very
little change in the number of firms at the top of the earning distribution. There is, however,
a decline in the number of firms residing in the other ranges, with the exception of those with
negative earnings. The number of firms with negative earnings increases from 418 in 1990 to 649
in 2001. The level and percentage analysis of real earnings contained in the last two columns of
panel E offers strong evidence for increasing concentration in earnings among U.K. firms. Indeed,
the increase in 2001 earnings over that of 1990 for the top earners (i.e., in excess of £1 billion)
354
Table 6
Cross-sectional distribution of firms’ real earnings (1990 currency) in 1990 and in 2001: industrial firms on Company Analysis
Real earnings (1990 yen) Number of firms Real earnings (¥ billion) Real earnings as a percent of total
1990 2001 1999–2001 1990 2001 1999–2001 1990 2001 1999–2001
Panel A: Cross-sectional distributions of real earnings for Japanese firms

A. ¥100 billion or greater 8 11 7 1618 2605 1821 25.4 40.7 53.9
B. ¥50–100 billion 11 17 12 745 1260 837 11.7 19.7 24.8

C. ¥10–50 billion 115 118 95 2330 2597 2038 36.5 40.6 60.4
D. ¥1–10 billion 408 330 317 1674 1278 1178 26.2 20.0 34.9
E. ¥0–1 billion 75 133 147 45 63 69 0.7 1.0 2.0
F. Negative earnings 15 174 212 −33 −1402 −2568 −0.5 −21.9 −76.1
Total 632 783 790 6378 6401 3376 100.0 100.0 100.0
Total positive earnings only 617 609 578 6411 7803 5943 – – –
Panel B: Cross-sectional distributions of real earnings for Japanese hybrid firms
B. ¥50–100 billion 2 2 2 145 146 144 9.0 11.1 12.7
C. ¥10–50 billion 15 14 11 309 318 230 19.2 24.2 20.2
D. ¥1–10 billion 59 37 32 242 139 116 15.0 10.6 10.2
E. ¥0–1 billion 9 20 21 6 10 11 0.4 0.7 1.0
Total 92 96 99 1610 1314 1138 100.0 100.0 100.0
Panel C: Cross-sectional distributions of real earnings for Japanese independent firms
B. ¥50–100 billion 1 11 7 58 818 487 2.3 25.1 28.1
C. ¥10–50 billion 45 62 53 863 1379 1146 34.2 42.3 66.2
D. ¥1–10 billion 220 197 187 883 763 675 35.0 23.4 38.9
E. ¥0–1 billion 42 85 93 24 42 43 1.0 1.3 2.5
Total 317 459 454 2522 3263 1732 100.0 100.0 100.0
Panel D: Cross-sectional distributions of real earnings for Japanese keiretsu firms
B. ¥50–100 billion 8 4 3 542 296 206 24.1 16.2 40.8
C. ¥10–50 billion 55 42 31 1158 900 662 51.5 49.3 131.0
D. ¥1–10 billion 129 96 98 549 376 388 24.4 20.6 76.7

E. ¥0–1 billion 24 28 32 15 11 14 0.7 0.6 2.8
Total 223 228 238 2247 1824 505 100.0 100.0 100.0
Real earnings (1990 pounds) Number of firms Real earnings (£ million) Real earnings as a percent of total
1990 2001 1999–2001 1990 2001 1999–2001 1990 2001 1999–2001
Panel E: Cross-sectional distributions of real earnings for United Kingdom firms

A. £1 billion or greater 5 6 6 6590 12630 13108 20.4 189.4 50.7
B. £500 million to £1 billion 13 5 7 8894 3436 5181 27.6 51.5 20.0
C. £250–500 million 16 11 16 5006 3571 5602 15.5 53.5 21.6
D. £100–250 million 52 22 34 8805 3442 5468 27.3 51.6 21.1
E. £50–100 million 54 41 44 3809 2920 3025 11.8 43.8 11.7
F. £25–50 million 68 49 54 2420 1651 1890 7.5 24.8 7.3
G. £10–25 million 206 89 110 3158 1387 1741 9.8 20.8 6.7
H. £0–10 million 1219 534 659 3188 1273 1645 9.9 19.1 6.4
I. Negative earnings 418 649 581 −9594 −23640 −11785 −29.7 −354.4 −45.5
Total 2051 1406 1512 32276 6670 25875 100.0 100.0 100.0
A firm is included only if Company Analysis reports dividends and net income (after tax, extraordinary items and other after tax items) for the years in our analysis. A firm’s
dividends and earnings are the amounts reported for the fiscal years ending in 1990 or 2001. Real earnings are nominal net income converted to 1990 values using the consumer
price index.
355
approximates the total net aggregate earnings for all U.K. firms in 2001. The earnings for this
top group of earners is about 190% of net aggregate earnings and is 41.6% of aggregate positive
earnings. Use of the 1999–2001 sub-period averages smoothes out the performance of these top
earners, but still reveals a growing concentration in total earnings attributable to these firms.
We conclude from Table 6 that earnings concentration demonstrates different patterns across the
Japanese and U.K. markets. The Japanese market exhibits a modest increase in concentration, but
this trend appears driven by the earnings behavior of independent firms. The recent emergence of
five keiretsu firms with earnings in excess of ¥100 billion also contributes to some concentration
with this category. But U.K. firms appear to have become the most concentrated relative to
corporate earnings. The six largest earners in the U.K. account for over 41% of aggregate positive
earnings in 2001, compared to only 15.7% in 1990.
5.4. Earnings distribution of dividend payers and non-payers
In Table 7, we separate the pooled distribution of real earnings discussed in the previous
section into separate distributions for dividend payers and non-payers. This analysis will allow
us to examine the relation between corporate earnings and the firm’s payment of dividends. Panel
A confirms the strong relationship that exists between earnings and dividends in Japan, although
this relationship has recently weakened. In 1990, 100% of all firms in the top three ranges for real
earnings paid dividends. In 2001, however, only 88.2% of firms in the second highest earnings
range paid dividends while 95.8% of firms in the third highest range distributed dividends to their
shareholders. At the bottom end of the distribution, we also note a decline in the percentage of
dividend payers. Surprisingly, however, the percentage of Japanese firms with negative earnings
that pay dividends increases between 1990 and 2001.
In panels B–D, we examine changes in the relation between earnings and dividends for the
three categories of Japanese firms. We observe no changes in the top end of the distribution
for hybrid firms, although we find some softening in the percentage of dividend payers within
the lowest earnings ranges. It is among the independent and keiretsu firms that we most clearly
observe weakening in the relation between earnings and dividends in Japan. Both categories of
firms exhibit an increase in the number of non-payers among the three top earnings ranges.
We present our findings for the U.K. in panel E. In 1990, we note that some firms with positive
earnings fail to pay dividends, including firms in the top three earnings ranges. In 2001, all U.K.
firms in the top three earnings ranges pay dividends. Further, firms in most of the other ranges
likewise increase the frequency with which they pay dividends. But unlike our results for Japan,
we find that U.K. firms with negative earnings are less likely to pay dividends in 2001 relative to
1990. We conclude that concentration of dividend payment among U.K. firms with high earnings
has increased since 1990 and that firms with losses are increasingly less likely to pay dividends.
This pattern in U.K. dividend payment contrasts with that observed for Japan where there is only
modest change in the frequency of dividend payment across earnings ranges, including those
firms with negative earnings.
Table 7 examines the influence that corporate earnings exert on a firm’s ability to pay div-
idends. We find that the relation between earnings and dividends is positive among Japanese
firms, but appears to be weakening, especially among the independent and keiretsu firms. Indeed,
those high earning Japanese firms that do not pay dividends are most likely to be either inde-
pendent or keiretsu affiliated. Table 7 finds that U.K. firms with high levels of earnings are
increasingly likely to pay dividends while those with negative earnings are more likely not
to pay.
Table 7
Real earnings for Japanese and U.K. firms in 1990 and 2001 partitioned by dividend payers and non-payers
Real earnings (1990 yen) 1990 Number of firms 2001 Number of firms 1990 Real earnings (¥ billion) 2001 Real earnings (¥ billion)
Payers Non-payers Payers (%) Payers Non-payers Payers (%) Payers Non-payers Percent Payers Non-payers Percent
from payers from payers
Panel A: Real earnings for Japanese firms
A. ¥100 billion or greater 8 0 100.0 11 0 100.0 1618 0 100.0 2605 0 100.0
B. ¥50–100 billion 11 0 100.0 15 2 88.2 745 0 100.0 1081 178 85.8
C. ¥10–50 billion 115 0 100.0 113 5 95.8 2330 0 100.0 2468 128 95.1

D. ¥1–10 billion 394 14 96.6 315 15 95.5 1638 36 97.8 1232 46 96.4
E. ¥0–1 billion 69 6 92.0 114 19 85.7 42 3 93.5 56 7 88.7
F. Negative earnings 8 7 53.3 128 46 73.6 −17 −16 50.7 −908 −494 64.8
Total 605 27 95.7 696 87 88.9 6356 23 99.6 6535 −133 102.1
Panel B: Real earnings for Japanese independent firms

B. ¥50–100 billion 1 0 100.0 10 1 90.9 58 0 100.0 730 88 89.2
C. ¥10–50 billion 45 0 100.0 60 2 96.8 863 0 100.0 1299 80 94.2
D. ¥1–10 billion 215 5 97.7 188 9 95.4 869 14 98.5 729 34 95.5
E. ¥0–1 billion 40 2 95.2 77 8 90.6 24 1 97.4 39 3 92.5
Total 308 9 97.2 414 45 90.2 2512 9 99.6 3358 −95 102.9
Panel C: Real earnings for Japanese hybrid firms
B. ¥50–100 billion 2 0 100.0 2 0 100.0 145 0 100.0 146 0 100.0
C. ¥10–50 billion 15 0 100.0 14 0 100.0 309 0 100.0 318 0 100.0
D. ¥1–10 billion 58 1 98.3 35 2 94.6 237 5 97.9 135 4 97.0
E. ¥0–1 billion 9 0 100.0 17 3 85.0 6 0 100.0 9 1 89.7
Total 90 2 97.8 88 8 91.7 1607 3 99.8 1343 −29 102.2
Panel D: Real earnings for Japanese keiretsu firms in 1990 and 2001 partitioned into dividend payers and non-payers
A. ¥100 billion or greater 0 0 – 5 0 100.0 0 0 – 739 0 100.0
B. ¥50–100 billion 8 0 100.0 3 1 75.0 542 0 100.0 206 90 69.6
C. ¥10–50 billion 55 0 100.0 39 3 92.9 1158 0 100.0 851 49 94.6
D. ¥1–10 billion 121 8 93.8 92 4 95.8 532 17 96.8 368 8 97.9
E. ¥0–1 billion 20 4 83.3 20 8 71.4 12 2 84.4 8 3 73.7
−10
357
Total 207 16 92.8 194 34 85.1 2236 11 99.5 1834 100.5
358
Panel E: Real earnings for U.K. firms
Real earnings (1990 pounds) 1990 Number of firms 2001 Number of firms 1990 Real earnings (£ million) 2001 Real earnings (£ million)
Payers Non-payers Payers (%) Payers Non-payers Payers (%) Payers Non-payers Percent Payers Non-payers Percent
from payers from payers
A. £1 billion or greater 4 1 80.0 6 0 100.0 5266 1324 79.9 12630 0 100.0
B. £500 million to £1 billion 13 0 100.0 5 0 100.0 8894 0 100.0 3436 0 100.0
C. £250–500 million 15 1 93.8 11 0 100.0 4736 270 94.6 3571 0 100.0
D. £100–250 million 51 1 98.1 21 1 95.5 8591 214 97.6 3339 103 97.0
E. £50–100 million 50 4 92.6 40 1 97.6 3508 301 92.1 2866 53 98.2
F. £25–50 million 61 7 89.7 44 5 89.8 2166 254 89.5 1503 148 91.0
G. £10–25 million 171 35 83.0 82 7 92.1 2635 523 83.4 1287 100 92.8
H. £0–10 million 968 251 79.4 407 127 76.2 2596 591 81.5 1144 130 89.8
I. Negative earnings 125 293 29.9 143 506 22.0 −1731 −7863 18.0 −13521 −10118 57.2
Total 1458 593 71.1 759 647 54.0 36661 −4385 113.6 16255 −9585 243.7
The distribution of real earnings for payers and non-payers in 1990 and 2001 are shown. Real earnings are nominal income after tax, extraordinary and other after tax items,
but before any dividend distribution is made converted to 1990 values using the corresponding national consumer price index. The percent from payers represents the percent
of total earnings attributable to dividend-paying firms.
6. Aggregate payout and the propensity to pay
In this section, we use the aggregate dividend payments by our sample firms to determine if
there has been a change in the propensity to pay dividends. This analysis extends our analysis
between a firm’s earnings capacity and its payment of dividends. More specifically, we test whether
Japanese and U.K. firms now distribute a lower proportion of their earnings as dividends than
previously.
Rows 1 and 2 of panel A for Table 8 show that the aggregate Japanese payout ratio changes
very little from 1990 to 2001 whether we combine dividend payers and non-payers or examine
dividend payers separately. In row 3, we see that the median firm’s payout ratio declines from
29.8% to 24.7% over the sample period. In rows 4 and 5, we restrict our analysis to a constant
composition sample that consists of firms that pay dividends in both 1990 and 2001. For this
Table 8
Aggregate and median dividend payout ratios for Japanese and U.K. firms for 1990 and 2001
Panel A: Aggregate and median dividend payout ratios for Japanese and U.K. firms
Payout measure One-year earnings (%)

Japanese firms U.K. firms
1990 2001 1990 2001
1. Aggregate dividends/aggregate earnings 25.6 27.5 53.8 276.0

(payers and non-payers pooled)
2. Aggregate dividends/total earnings of 25.6 27.0 47.4 113.2
dividend payers
3. Median firm’s payout ratio (dividend payers) 29.8 24.7 36.5 37.4
4. Constant composition sample: total 24.2 28.4 39.9 198.5
dividends/total earnings of these dividend
payers
5. Constant composition sample: median firm’s 28.0 27.1 36.2 39.1
payout ratio
Panel B: The payout ratios by the organizational form of the Japanese firm
Payout measure One-year earnings (%)
Independent Hybrid Keiretsu
1990 2001 1990 2001 1990 2001
1. Aggregate dividends/aggregate earnings 27.8 26.0 19.1 28.3 27.7 29.7

(payers and non-payers pooled)
2. Aggregate dividends/total earnings of 27.9 25.3 19.1 27.7 27.8 29.6
dividend payers
3. Median firm’s payout ratio (dividend payers) 30.3 22.2 27.9 30.4 29.8 27.8
4. Constant composition sample: total 26.3 30.5 18.5 27.5 26.3 26.9
dividends/total earnings of these dividend
payers
5. Constant composition sample: median firm’s 28.1 25.1 27.4 30.9 29.6 27.9
payout ratio
The payout ratios in rows 1 and 2 are based on aggregate dividends paid by firms in 1990 or 2001. The denominator in row
1 is the sum of earnings for both payers and non-payers, while row 2 calculates the denominator as the sum of earnings
for payers only. Row 3 reports the median firm’s payout ratio. The payout ratios in rows 4 and 5 are based on dividends
and earnings for the constant composition sample of firms that paid dividends in both 1990 and 2001.
sample, we find that the aggregate payout ratio increases between 1990 and 2001. Row 5 shows
that the payout ratio for the median constant composition firm changes very slightly, declining
from 28.0% to 27.1%.
In panel B, we examine the nature of Japanese payout ratios across firm type. Although there
are some individual differences across the five measures of payout for the three different categories
of Japanese firm, the overall finding appears to be one of stability in the level of dividend payout
over our sample period. The aggregate dividend payout ratios in rows 1 and 2 change very little for
the independent and keiretsu firms. The hybrid firms, however, increase their payout from 19.1%
to 28.3%. The median firm’s payout ratio changes the most for independent firms, declining
from 30.3% to 22.2%. Although the aggregate payout ratio for the constant composition firms
demonstrates a large increase for hybrid firms, when we consider the median payout ratio for this
sub-sample, we find that it changes very little across firm organizational type. We conclude that
the findings for individual firm category do indicate some differences in aggregate behavior, but
on balance, confirm a stability in Japanese payout ratios.
We also examine the payout practices in the U.K. and observe some dramatic changes for the
aggregate measures reported in rows 1 and 2. But the high number of U.K. firms with negative
earnings in 2001 inflates the value of these aggregate values. The median values contained in rows
3 and 5 partially control for this inflation and suggests that payout ratios increase only slightly over
time. For instance, the payout ratio for the median firm in the constant composition sub-sample
marginally increases from 36.2% to 39.1%.
The results contained in Table 8 indicate that payout ratios in both Japan and the U.K. do not
decline over our sample period and are inconsistent with any global declining propensity to pay
dividends. Indeed, when we consider the median payout ratio for consistent dividend payers over
the sample period, we find that it declines only nominally for Japanese firms and increases for
U.K. firms.
7. Conclusion
Although previously documented for the U.S., this is the first study to examine current patterns
in dividend and earnings concentration for other major international capital markets. This study
reports trends in dividend behavior and earnings consolidation that differ in important ways from
that recently observed in the U.S. Such results indicate that in spite of increasing globalization and
strengthening linkages between the world’s economies, critical differences in national financial
markets persist. Although the level of aggregate dividends for both Japan and the U.K. exhibit
modest increases over our sample period, neither the magnitude nor the trend of these increases are
comparable to the U.S. experience. Further, we find that consideration of the firm’s organizational
form is essential for understanding dividend and earnings behavior in Japan. Whereas aggregate
Japanese dividends increase by 8.2%, firms belonging to a keiretsu reduce their dividends by
12.8%. We interpret this finding and its supporting analysis as suggesting that there is less need
for dividends to reduce informational asymmetry or to control the agency costs associated with
free cash flow within keiretsu-affiliated firms.
We find that dividend concentration is present in the U.K. and might be marginally more severe
than that observed for the U.S. DeAngelo et al. (2004) find that the top 100 dividend payers
account for 81.8% of all U.S. dividends. The top 100 U.K. dividend payers, however, account
for 88.3% of aggregate dividends within the U.K. We find that dividend concentration does not
change in Japan and remains at levels comparable to those prevailing in the U.S. during the late
1970s. We conclude that although increasing dividend concentration does not hold universally,
neither is it limited to the U.S. Fewer firms are paying more dividends, but not everywhere around
the world.
As a prelude to our analysis of the relation between dividends and corporate earnings, we
examine the cross-sectional distribution of earnings. We find evidence of earnings growth and some
consolidation among Japanese firms, but there are important differences by firm organizational
form. We also observe earnings concentration in the U.K., but it is exacerbated by the effects of
an economy in recession. Overall, it is this increase in earnings concentration among independent
Japanese and U.K. firms that most closely mimics U.S. trends in dividends and earnings. But it is
precisely these firms that are highly subject to market forces and most similar to U.S. corporations.
An important inquiry of this study is the nature of the relation between a firm’s earnings and
its ability to pay dividends. DeAngelo et al. (2004) provide evidence for a strong linkage between
these variables in the U.S. Our international analysis, however, offers more mixed results. U.K.
firms behave similarly to those in the U.S. Few U.K. firms with negative earnings pay dividends
and the trend away from dividends for these firms is strengthening. This result might reflect
similar attitudes towards dividends by mangers of firms located in common law countries. Among
Japanese firms, however, the number of firms with negative earnings that also pay dividends
increases between 1990 and 2001. We find that over 73% of Japanese firms with negative earnings
pay dividends in 2001 compared to only 22% of U.K. firms.
DeAngelo et al. (2004) describe the emergence in the U.S. of a two-tier structure based on
corporate earnings. The top tier contains a limited number of very high earners which provide a
disproportional amount of total dividends. The second tier consists of a number of small to medium
earners that collectively contribute little to the aggregate supply of dividends. Our findings provide
only partial support for such a system in the international capital markets. The U.K. experience
appears to increasingly resemble this two-tier system with dividend payers present only among
the very top earners. Indeed, the top six dividend payers in the U.K. account for nearly 44% of
all U.K. dividends in 2001.
Japanese firms do not fit this two-tier structure as well. Although there is a tendency for the very
top Japanese earners to be dividend payers, their contributions represent a much smaller percentage
of the aggregate dividend supply. In 2001, for instance, the top 10 Japanese dividend payers
accounted for only 20.9% of aggregate dividends. Rather, the important structural dimension
to aggregate Japanese dividend behavior resides in the keiretsu, hybrid and independent firm
classification. Independent firms closely resemble firms operating in the U.S. and U.K. and are
most sensitive to market forces. The business protections provided by an industry grouping,
however, help to insulate keiretsu firms from market forces and make dividends less useful as
either signals or devices to discipline managers.
We conclude from our examination that world economic integration has produced certain
commonalities in corporate and financial behavior. Yet this study of global dividend policy shows
that important distinctions remain between national capital markets.
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Are Fewer Firms Paying More Dividends? The International Evidence

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Are Fewer Firms Paying More Dividends? The International Evidence

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J. of Multi. Fin. Manag.

Are fewer firms paying more dividends?

JEL classiﬁcation: G35; C23

Keywords: Dividends; Propensity to pay; Aggregate dividends

∗ Corresponding author. Tel.: +1 573 882 9905.

2. Data description and sample construction

3. International trends in aggregate dividends and earnings

Year Japanese firms U.K. Firms

S.P. Ferris et al. / J. of Multi. Fin. Manag. 16 (2006) 333–362

Year Independent Hybrid Keiretsu

S.P. Ferris et al. / J. of Multi. Fin. Manag. 16 (2006) 333–362

Variable Independent Hybrid Keiretsu

4. Concentration in the payment of dividends

4.1. Dividend rankings

Dividend Percent of total dividends

Dividend Real dividends (¥ billion, 1990 base)

All Independent Hybrid Keiretsu All Independent Hybrid Keiretsu

Dividend Percent of total dividends Real dividends (£ million, 1990 base)

Top 100 72.0 88.3 12509 16245

4.2. Cross-sectional analysis of dividend payments

We further investigate the nature of dividend concentration by constructing a cross-sectional

S.P. Ferris et al. / J. of Multi. Fin. Manag. 16 (2006) 333–362

Total 605 696 91 15.0 1630 1764 134 8.2

¥15 billion and above 16 14 −2 −12.5 458 440 −17 −3.8

Total 90 88 −2 −2.2 307 372 65 21.3

¥15 billion and above 4 5 1 25.0 127 193 67 52.6

Total 308 414 106 34.4 701 849 148 21.2

S.P. Ferris et al. / J. of Multi. Fin. Manag. 16 (2006) 333–362

Total 207 194 −13 −6.3 622 542 −80 −12.8

¥15 billion and above 7 3 −4 −57.1 125 55 −70 −55.7

Panel E: Number of U.K. firms and their real dividend payments

Total 1458 759 −699 −47.9 17370 18406 1036 6.0

£100 million and above 33 39 6 18.2 8311 13262 4951 59.6

5. The relation between dividends and earnings

5.1. Earnings trends in Japan and the U.K.

5.2. Earnings for ﬁrms based on dividend rankings

Dividend ranking Percent of total earnings of dividend-paying industrial firms

All Independent Hybrid Keiretsu All Independent Hybrid Keiretsu

Dividend ranking Real earnings (¥ billion, 1990 base)

All Independent Hybrid Keiretsu All Independent Hybrid Keiretsu

Dividend ranking Percent of total earnings of Real earnings

Top 100 73.1 82.0 26801 13335

5.3. Pooled earnings distribution

In Table 6 , we present a cross-sectional distribution of earnings for both dividend payers

1990 2001 1999–2001 1990 2001 1999–2001 1990 2001 1999–2001

Panel A: Cross-sectional distributions of real earnings for Japanese firms

S.P. Ferris et al. / J. of Multi. Fin. Manag. 16 (2006) 333–362

S.P. Ferris et al. / J. of Multi. Fin. Manag. 16 (2006) 333–362

1990 2001 1999–2001 1990 2001 1999–2001 1990 2001 1999–2001

Panel E: Cross-sectional distributions of real earnings for United Kingdom firms

5.4. Earnings distribution of dividend payers and non-payers

S.P. Ferris et al. / J. of Multi. Fin. Manag. 16 (2006) 333–362

Panel B: Real earnings for Japanese independent firms

Total 90 2 97.8 88 8 91.7 1607 3 99.8 1343 −29 102.2

6. Aggregate payout and the propensity to pay

Payout measure One-year earnings (%)

1990 2001 1990 2001

1. Aggregate dividends/aggregate earnings 25.6 27.5 53.8 276.0

Payout measure One-year earnings (%)

Independent Hybrid Keiretsu

1990 2001 1990 2001 1990 2001

1. Aggregate dividends/aggregate earnings 27.8 26.0 19.1 28.3 27.7 29.7

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