In the German Empire, corporations almost always paid a dividend to their shareholders. Dividends have been cut or increased in line with the development of profits. We demonstrate that the target dividend and the average dividend tended to be nearly the same. If the dividend paid deviated from the target, we measure an extraordinarily fast return towards the target. Our analysis of the change in dividends, the payout ratio, and the dynamics of the dividend level provides evidence in favour of the agency theory of dividend policy. Companies with good investment opportunities paid comparatively high dividends. An improvement in shareholder protection weakened this effect. Best practice voting rights at the company level have systematically influenced dividend levels, the relevance of investment opportunities for the dividend policy and the speed of adjustment after a deviation from the target.
