1 The Payout Policy of Family Firms in Continental Western Europe

The idiosyncratic preferences of controlling shareholders play an important role in determining the payout policy of a company. Among controlling shareholders, families are quite common in Continental Western Europe (Faccio et al., 2001, Caprio et al., 2011). We know that family managers often take decisions in the interests of the family rather than in the interests of the company (Bertrand and Schoar, 2006; Morck and Young, 2004). Payout policy of family firms could be implemented in order to satisfy idiosyncratic preferences of the family owner rather than maximizing the value of the company. Using a sample of 777 Western European Companies, I observed the payout policy in the 1997 – 2010 year period. I find that family firms significantly prefer dividends to buyback. Considering family managers, I find that CEO founders do not like to payout dividends, while CEO heirs do prefer dividends. Family firms controlled and managed by founders are more likely to use buyback and show a lower amount of dividend payout. On the other side, heir CEOs disgorge much more cash though dividends. Jensen‟s FCF theory (1989) seems to hold for family firms managed by founders, because they over retain cash rather than distributing it. Warther‟s (1993) “sleeping dogs ” theory could be a good explanation for heir CEOs ‟ propensity to distribute cash dividends. In fact, they need to satisfy a larger controlling group and also they need to make the other heirs happy enough to avoid interfering into management decisions