International evidence on the relationship between corporate ethics and dividend policy

Purpose - This paper aims is to document the relationship between corporate ethics prevailing in the country and the dividend policies adopted by firms. Design/methodology/approach - The paper uses the data of non-financial firms from 61 countries to test the arguments presented in this paper. The data cover the period between 2010 and 2017. Findings - This paper shows that dividend policies adopted by firms are sensitive to corporate ethics prevailing in the country. The firms headquartered in countries with relatively strong corporate ethics are less likely to pay dividends than firms headquartered in countries with relatively weak corporate ethics. These findings are robust across various proxies of dividend policy and across various estimation procedures. The paper, however, also shows that the relationship between corporate ethics and dividend policies is confined only to countries with strong institutional environment. This relationship breaks down in countries with weak institutional environment. Lastly, the paper shows that the value of dividend policy is more pronounced in countries with relatively weak corporate ethics. Originality/value - Unlike the attempts to relate firm-level ethics and dividend policy, this paper focuses on the relationship between country-level indicator of corporate ethics and dividend policies. The benefit of using the country-level indicator of corporate ethics is that it highlights the general attitude of corporations with respect to ethics.