Title: Dividend policy issues in the financial crisis: the example of the German automotive industry

Authors: Tobias Basse, Mario Gruppe, Sebastian Reddemann, Frank Schwope

Addresses: Norddeutsche Landesbank (NORD/LB), Friedrichswall 10, D-30159 Hannover, Germany; Touro College Berlin, Am Rupenhorn 5, D-14055 Berlin, Germany. ' Norddeutsche Landesbank (NORD/LB), Friedrichswall 10, D-30159 Hannover, Germany. ' Center for Risk and Insurance, Leibniz Universitat Hannover, Konigsworther Platz 1, D-30167 Hannover, Germany; Touro College Berlin, Am Rupenhorn 5, D-14055 Berlin, Germany. ' Norddeutsche Landesbank (NORD/LB), Friedrichswall 10, D-30159 Hannover, Germany

Abstract: The global financial crisis has created some problems for car manufacturers and their suppliers. Dividend cuts and omissions have been suggested as one possibility to improve the financial strength of firms in the automotive industry. However, some observers have expressed fears that investors could interpret a reduction of dividends as a sign for future problems. This argument is quite clearly based on the dividend signalling and dividend smoothing hypotheses. Therefore, we use VAR/VECM techniques to analyse the dividend policy of the German automotive industry. The empirical evidence reported in this study does indicate that there is no support for the dividend signalling hypothesis. However, dividend smoothing seems to be a relevant economic phenomenon. As a consequence, firms in this sector of the German economy considering dividend cuts or omissions should at least communicate clearly why they plan to do so.

Keywords: dividend policy; automotive manufacturing; automobile industry; dividend signalling; dividend smoothing; economic crisis; cointegration; Germany; financial crisis; dividend reduction.

DOI: 10.1504/IJADS.2011.040881

International Journal of Applied Decision Sciences, 2011 Vol.4 No.3, pp.247 - 259

Available online: 26 Jun 2011

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