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EU policies consider access to finance as one of the main challenges for family firms, which warrants attention to the financing decisions of these firms. After all, paying out dividends significantly reduces the internal financial resources available to the business. As illustrated by the Covid-19 pandemic, many firms of different sizes, both private and public, have cancelled their dividend pay-outs or have changed their dividend policy to increase the internal cash available to the company. Although we notice growing academic attention to the field of family business financing (especially regarding their capital structure), dividend policies of family businesses remain a black box. Especially in this group of firms it is important to further advance our knowledge because dividends are crucial to governing the family and the business and to managing the firm’s investments. With this study, we therefore give the first complete overview of research on family firms’ dividend decisions, which form an excellent basis to elaborate future studies in this area.

The Dividend Puzzle in Family Firms

Dividend policy can be considered as a very important financial decision that family businesses need to make in trading profit retention versus distribution (i.e. providing liquidity for the family). Despite the broad theoretical and empirical analysis in the finance literature, dividend decisions remain a complex, and even mysterious, topic in the field of business financing. After all, dividends were initially considered to be irrelevant by Modigliani and Miller (1958), who declared that shareholder wealth will be unaffected by the decision concerning dividend pay-out. Even more so, dividends are less favourable than capital gains because of taxation. Yet, most firms do pay dividends, and they do so regularly. This “dividend puzzle” is even more complex in family businesses, as family businesses are characterised by a peculiar financial logic which reflects in their dividend policies. Additionally, family businesses face a unique conflict of interest, namely the intra-familial conflict of interest between active and passive family shareholders (i.e. shareholders who actively participate in management, and shareholders who do not work in the family business), which further complicates the dividend decision.

What Do We Know?

Academic studies to date have mainly focused on three research questions:

  • Do family firms pay dividends more often than non-family firms?

Some studies say “yes” and argue that this is because family firms usually aim to provide family owners with a stable income stream to finance their cost of living. Intra-familial conflicts of interests between active and passive shareholders seem to further increase the likelihood of family firms paying dividends.

Other studies say “no” as they find family firms to be less inclined to pay dividends as they have a preference to remain in control, and therefore to keep the money inside the firm.

  • Do family firms pay higher dividends than nonfamily firms?

Again, there is no consensus whatsoever in current research. Some studies say “yes” and argue that this is because family owners consider high retained earnings as an undesirable concentration of firm-specific risk, and therefore prefer dividends which can be reinvested in other firms or used for personal consumption. Another argument is that family firms pay higher dividends because it is a result of investors demanding higher dividends from companies with the highest risk of expropriation of minority shareholders.

Another stream of research finds that family firms pay lower dividends than non-family firms and argue that this is because family firms are more vulnerable to expropriate minority shareholders. Additionally, they prefer to use internal funds to finance their investments since they prefer to retain control and thus avoid resorting to outside equity.

  • Do family firms distribute more stable dividends than nonfamily firms?

The answer seems to be “yes”, because family businesses smooth their dividends in order to avoid future financing constraints such as running out of capital and thereby compromising future investments.

Where Should We Go?

In our study, we point to three main issues that future research should take into account.

First, they should adopt a behavioural view in order to better understand family firm dividend decisions and behaviour. Second, they should focus more on the most important type of family business, i.e., SMEs. Third, researchers should investigate how family firm heterogeneity influences dividend decision-making and outcomes. For example, family firms in the founding owner stage will likely have a totally different view towards dividend decisions than family firms in the cousin consortium stage with a complex family structure. Similarly, governance structures will likely give more options regarding the involvement of family owners (psychological dividend) versus the payout of profits.


Prof. dr. Anneleen Michiels, Research Center for Entrepreneurship and Family firms UHasselt, anneleen.michiels@uhasselt.be

Reference to study

Molly, V., Michiels, A. Dividend Decisions in Family Businesses: A Systematic Review and Research Agenda. Journal of Economic Surveys. 2021; 1– 35.  https://doi.org/10.1111/joes.12460