CULTURE, CORPORATE GOVERNANCE, AND DIVIDEND POLICY: INTERNATIONAL EVIDENCE

Authors


  • The authors wish to thank Janice How, Jongsub Lee, Yao Lu, Scott Weisbenner, and session participants at the 2010 Financial Management Association Meetings, the 2010 University of Saskatchewan Edwards Symposium of Corporate Governance, and the 2011 Korea America Finance Association 20th Anniversary Conference with Korea Capital Market Institute for many helpful comments, and Hana Bae for extensive editorial help on the earlier version of the paper. The comments of Stephen P. Ferris (the referee) and Jayant R. Kale (the editor) significantly improved the exposition of the paper. Bae acknowledges financial support from the CBA Summer Research Grant Program at Bowling Green State University. The usual disclaimer applies.

Abstract

We find that Hofstede's cultural dimensions—uncertainty avoidance, masculinity, and long-term orientation—remain significant in the determination of firms’ dividend policies, even after controlling for corporate governance. We also show that this association varies with the strength of corporate governance, measured by the degree of investor protection. Hence, national culture and investor protection independently affect firms’ dividend payouts but also interact with each other, such that strong investor protection induces higher dividend payouts in high uncertainty avoiding and/or highly masculine cultures. Our results provide strong evidence that cultural differences matter and offer additional power in explaining variations in dividend policies.

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