Does religiosity affect the dividend payouts of Italian-listed companies?

Abstract

This study investigates the relationship between local culture, as measured by religiosity, and dividend payouts based on a sample of 155 Italian firms over the period 2000–2016, yielding 2,382 firm-year observations. We find a significantly positive relationship between religiosity and dividend payouts, with firms headquartered in higher religiosity areas paying more dividends than firms located in lower religiosity areas. We also find no relationship between religiosity and stock returns. An additional test also suggests that religiosity of Italian firms could mitigate agency costs. Our results are consistent with the “bird-in-the-hand theory” and generally consistent with the empirical literature on the relationship between social values (local culture) and corporate decisions. Since religiosity is a determinant of dividend payouts, it also is an appropriate explanatory variable when examining the behavior of a firm’s dividend policies.