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Languages and dividends

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  • He, Wen
  • Zhang, Feida

Abstract

We study whether languages are related to corporate dividend policies around the world. Users of languages with a weak future time reference (FTR), such as Japanese and Finnish, do not need to grammatically distinguish future and current events, while users of strong-FTR languages such as French and Italian do. Chen (2013) shows that people who use weak-FTR languages may perceive the future to be nearer and have less precise perceptions of the timing of future events than users of strong-FTR languages. We argue that these perceptions may result in a lower discount rate and a higher valuation of future dividends, leading to a weaker preference and demand for a dividend today. Using a large sample of firms from 19 markets, we find supporting evidence that firms in weak-FTR language markets pay lower dividends than firms in strong-FTR language markets. The results remain robust after a battery of robustness tests, including using a single market with multiple languages and using a difference-in-differences approach in a market with a change of official languages. Further evidence shows that weak-FTR languages are related to a lower implied cost of equity capital and stronger market reactions to dividend changes. Our results offer a new explanation for cross-country differences in dividend policies and add to the research on culture and financial markets.

Suggested Citation

  • He, Wen & Zhang, Feida, 2022. "Languages and dividends," The British Accounting Review, Elsevier, vol. 54(6).
    • Handle: RePEc:eee:bracre:v:54:y:2022:i:6:s0890838922000646
    DOI: 10.1016/j.bar.2022.101132
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    More about this item

    Keywords

    Dividends; Languages; Future time reference; Culture; Corporate finance;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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