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Culture, agency costs, and dividends

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  • Fidrmuc, Jana P.
  • Jacob, Marcus

Abstract

This paper presents a culturally rooted agency explanation for differences in dividend payout policies around the world. We conjecture that the social normative nature of culture influences the character of agency relations and determines the acceptance and legitimacy of different dividend payout strategies across different countries. By linking dividends to cultural differences across 5797 firms in 41 countries, our analysis shows that high individualism, low power distance, and low uncertainty avoidance are significantly associated with higher dividend payouts. A comprehensive set of robustness tests in which we control for legal institutions, share repurchases, corporate debt ratios, and ownership structures confirms that culture is a relevant factor when analyzing dividend distributions. Our results further show that legal institutions and culture as a social institution have complementary effects on dividend payouts. Overall, our finding that culture matters suggests important implications for a wide range of agency-based economic and capital market phenomena.

Suggested Citation

  • Fidrmuc, Jana P. & Jacob, Marcus, 2010. "Culture, agency costs, and dividends," Journal of Comparative Economics, Elsevier, vol. 38(3), pages 321-339, September.
  • Handle: RePEc:eee:jcecon:v:38:y:2010:i:3:p:321-339
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    Cited by:

    1. Li, Jizhong & Jiang, Fuming & Shen, Jie, 2016. "Institutional distance and the quality of the headquarters–subsidiary relationship: The moderating role of the institutionalization of headquarters’ practices in subsidiaries," International Business Review, Elsevier, vol. 25(2), pages 589-603.
    2. Xue, Minggao & Cheng, Wen, 2013. "National culture, market condition and market share of foreign bank," Economic Modelling, Elsevier, vol. 33(C), pages 991-997.
    3. repec:eee:intfin:v:49:y:2017:i:c:p:154-172 is not listed on IDEAS
    4. Wang, Daphne & Esqueda, Omar A., 2014. "National cultural effects on leverage decisions: Evidence from emerging-market ADRs," Research in International Business and Finance, Elsevier, pages 152-177.
    5. repec:spr:manint:v:54:y:2014:i:3:d:10.1007_s11575-014-0201-z is not listed on IDEAS
    6. Narcis Tulbure, 2015. "Choice In Context: Rationality, Contingency And Risk In The Dividend Policy," Risk in Contemporary Economy, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, pages 388-395.
    7. Jakob, Keith & Nam, Yoonsoo, 2017. "Do cultures influence abnormal market reactions before official sovereign debt rating downgrade announcements?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 47(C), pages 65-75.
    8. Byrne, Julie & O’Connor, Thomas, 2017. "Creditor rights, culture and dividend payout policy," Journal of Multinational Financial Management, Elsevier, pages 60-77.
    9. Salzmann, Astrid & Soypak, Kalender, 2017. "National culture and private benefits of control," Finance Research Letters, Elsevier, vol. 20(C), pages 199-206.
    10. repec:eee:intfin:v:48:y:2017:i:c:p:47-60 is not listed on IDEAS
    11. Laetitia Lepetit & Céline Meslier-Crouzille & Leo Indra Wardhana, 2015. "Do Asymmetric Information and Ownership Structure Matter for Dividend Payout Decisions? Evidence from European Banks," Working Papers hal-01186722, HAL.
    12. Erkan, Asligul & Fainshmidt, Stav & Judge, William Q., 2016. "Variance decomposition of the country, industry, firm, and firm-year effects on dividend policy," International Business Review, Elsevier, vol. 25(6), pages 1309-1320.
    13. Byrne, Julie & O’Connor, Thomas, 2017. "Creditor rights, culture and dividend payout policy," Journal of Multinational Financial Management, Elsevier, pages 60-77.
    14. Huong Dang, 2014. "How dimensions of national culture and institutional characteristics influence sovereign rating migration dynamics," ZenTra Working Papers in Transnational Studies 42 / 2014, ZenTra - Center for Transnational Studies.
    15. Daugherty, Mary & Georgieva, Dobrina, 2011. "Foreign cultures, Sarbanes-Oxley Act and cross-delisting," Journal of Multinational Financial Management, Elsevier, pages 208-223.
    16. Breuer, Wolfgang & Rieger, M. Oliver & Soypak, K. Can, 2014. "The behavioral foundations of corporate dividend policy a cross-country analysis," Journal of Banking & Finance, Elsevier, vol. 42(C), pages 247-265.
    17. Costa, Bruce A. & Crawford, Anthony & Jakob, Keith, 2013. "Does culture influence IPO underpricing?," Journal of Multinational Financial Management, Elsevier, pages 113-123.

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