Abstract It is well documented that financial firms display a larger corporate payout propensity than non-financial firms, even after considering standard determinants of payout behavior. However, using an international sample of large, listed firms, we show that when we account for the roles of leverage, liquidity, and share ownership by institutional investors, the statistical difference in payout propensity between financial and non-financial firms disappears. A theoretical model that emphasizes the positive effects on companies’ payout policies of their (i) leverage, (ii) stock market illiquidity, and (iii) proportion of shareholders with short- versus long-term objectives is used to rationalize the empirical results.