Country culture matters: dividend policy when information is asymmetric

The paper addresses the impact of information asymmetry on dividend policy. The international literature expects/finds opposite signs of the relationship: a positive sign according to the signaling, agency and “bird in hand” theories; a negative one, according to the pecking order hypothesis. This paper focuses on which mediator role the country culture plays in this context, by adopting the national culture dimensions from Schwartz and Hofstede approaches. Dividend policy, when information is asymmetric, configures a sort of contrast between unequally informed managers and investors: less dividends to guarantee the firm growth/survivorship (the supply-side perspective) or more dividends to match the shareholder personal expectations to have money in hand, to avoid risks, to prevent managerial opportunistic behaviors (the demand-side perspective)? In this context, the subjective perceptions (that hinge on national culture) of asymmetric information (and agency) problems within a firm by managers/investors become relevant and define the ways this contrast is solved (i.e., which perspective prevails). The sample is a balanced panel of 3.509 firm-year observations: the nonfinancial companies listed at the STOXX Europe 600 index are considered over the decade 2010-2019. A new approach in considering the national culture impact is adopted. The culture framework cannot be analyzed by considering the cultural dimensions one by one, since they are correlated among them and their impact on dividend policy and on its relationship with asymmetric information cannot depend on each individually considered, but on various mixes of them that configure different country culture profiles. Therefore, a factor analysis is conducted that identifies three latent cultural factors that mix culture dimensions in relevant patterns. The extracted factors are then used to cluster countries in four different cultural profiles, used to mediate the impact of determinants on dividend payout. The empirical findings show that the culture matters. The payout policy of the country culture clusters: i) differs; ii) differently reacts to asymmetric information; iii) is differently stable over time; iv) differently reacts to the other firm characteristics, that traditionally affect the dividend policy.