This paper examines the impact of government ownership on the dividend policies of European banks between 2007 and 2021. Drawing on agency theory and using a unique hand-collected dataset of 217 listed banks across 31 countries, we explore how varying degrees of state ownership influence the likelihood and level of dividend distributions. Our empirical results reveal a nuanced relationship: while concentrated government ownership significantly reduces the propensity to pay dividends—consistent with the rent-extraction hypothesis—non-controlling government stakes are associated with a higher likelihood of dividend payouts. This divergence suggests that minority public ownership may mirror institutional investor behavior, driven by reputational concerns and transparency incentives. The findings are robust across all regression models and remain consistent when using the augmented payout ratio as an alternative dependent variable. Furthermore, the influence of government ownership diminishes following the implementation of the European Banking Union in 2015, indicating that supranational oversight through the Single Supervisory Mechanism has curtailed national governments' discretionary influence over bank governance. Our study contributes to the literature by challenging the uniform view of state ownership, highlighting the importance of ownership thresholds and institutional context in shaping dividend policy.

This work was supported by Instituto Politécnico de Lisboa, grant IPL/IDI&CA2024/CRYPTORISK_ISCAL and Fundação para a Ciência e a Tecnologia, grant UIDB/00315/2020 (DOI: 10.54499/UIDB/00315/2020), which we thankfully acknowledge.

Payout policy,Corporate governance,Ownership concentration,Dividends

• Economics and Business - Social Sciences