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Political system

Bank et al. (2009) note that the environment in which firms operate may have an influence on financial decisions (in particular between democratic and stable countries as compared to countries where there is unrest). But within the group of stable countries, are there any differences? As Bank et al. (2009, p. 208) underline “Are prevailing explanations for corporate institutions, based upon market forces, technological developments and the quality of the legal system, necessarily incomplete because no explicit allowance is made for the role of politics?”.

The authors attempt to fill this gap and study the situation of the United Kingdom over the period 1949-2002. More precisely, the authors analyze whether the conservative party or labour may have an influence on dividend policy or not. The choice is all the more judicious as English firms have a more generous dividend policy than those of other industrialized countries (in the 1990s whereas only one American company out of four paid dividends, the

ratio was five out of six in the United Kingdom). The authors point out that politics does not significantly influence corporate governance and that the alternation between the conservative and liberal parties does not significantly change dividend payments. All main results are presented in the table 1 below.