What determines whether the return on equity or dividends are too high?

It is often claimed that companies in OECD countries, under pressure from shareholders, provide an excessive return on equity ( RoE ) and distribute excessive dividends. Assessing the level of RoE and dividends calls for the use of two very different criteria: The gap between the RoE and the risk-free long-term interest rate, which should correspond to a normal equity risk premium; Available cash flow for invest ment . D ividends are only a fraction of the return on capital and should therefore not be analysed as representative of the return on equity; but the distribution of dividends does reduce the cash flow retained in the company. Looking at the large OECD countries, we find that: The return on equity is clearly too high in the United States and Germany; The distribution of dividends is probably too high in the United Kingdom. These anomalies are not present in France, Spain, Italy or Japan.