National culture and dividend policy : a study of the top 100 global companies

Abstract

This empirical study explores the way in which national culture might affect global corporate dividend policies. The question as to whether a company should pay out its dividends or retain its earnings is one of the financial phenomena that have yet to be resolved. Contrary to the early work of Modigliani and Miller, additional theories have attempted to overcome the hypothesis that the value of the firm does not change regardless of a firms’ dividend policy. These studies, mainly Agency Theory, Asymmetric Information Theory, “Bird in Hand” Theory and Pecking Order Theory have been analysed in previous research and many studies root these theories as the basis of why different firms across the globe payout different dividends to their shareholders. This study aims to explore these objective theories and enhancing the research by including the notion of culture, and whether this subjective assessment can aid in solving the dividend puzzle. The notion of national culture differences could further aid in exploring why different management would prefer altered policies for their corporation. This study employs Schwartz’ cultural measures of Conservatism and Mastery, along with the equivalent dimensions from Hofstede’s study, Individualism and Masculinity as a proxy for culture. Data was collected for the top 100 global companies by market capitalization for the years of 2012 through to 2014. Taking into account robustness checks to enhance the model, the findings result in a positive relationship between Conservatism and dividend payouts, and conversely a negative relationship with Mastery when regressed with dividend payouts. This study enhances work that has already been done by previous researches and expands the opportunity to include culture as a determinant for the changes in certain aspects of finance.