Social capital and dividend policies in US corporations

Chun Keung Hoi, Yun Ke, Qiang Wu and Hao Zhang

Journal of Financial Stability, 2023, vol. 69, issue C

Abstract: We find that social capital, as captured by associational networks and social norms in US counties where corporate headquarters are located, is positively associated with cash dividend payouts in local firms. The positive effect is incremental to other known local factors affecting dividends, is robust to a range of sensitivity analyses, and extends to corporate decisions about whether to pay dividends or not. Social capital mitigates managerial private financial incentives to limit dividends and encourages higher dividends among firms facing greater free cash flow problems. Social capital also attenuates over-investment of free cash flow.

Keywords: Social norms; Informal institutions; Payout policy; Free cash flow problem; Over-investment; Managerial opportunism (search for similar items in EconPapers)
JEL-codes: G34 G35 Z13 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:69:y:2023:i:c:s1572308923000864

DOI: 10.1016/j.jfs.2023.101186

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