Culture, Corporate Governance, and Dividend Policy: International Evidence

Using more than 112,000 firm-year observations in 33 countries, we find that two Hofstede’s cultural dimensions, uncertainty avoidance and long-term orientation, remain significant in the determination of dividend policy even after controlling for governance and firm-specific factors. When uncertainty avoidance is high, only firms in countries with stronger investor protection pay more dividends as investors’ desire of having a sure dividend dominates managers’ desire of retaining more cash. Similarly, when a society’s long-term orientation is strong, firms tend to pay less dividends. Our results suggest that cultural differences across countries offer additional power in explaining variations in dividend levels. JEL classification: G3; G35