Local Creative Culture and Dividend Policy

Abstract

This paper examines the role of local risk-taking propensity on dividend demand and corporate payout by using a novel measure. We empirically investigate geographically varying dividend demand and corporate dividend policies by using local creative culture as a measure of local risk-taking tendency. We find that firms located in areas with a strong creative culture are less likely to pay and initiate dividends. These firms also have lower levels of dividend yield. The empirical findings also remain robust after addressing endogeneity and a series of robustness checks.. In addition, our paper highlights the local component of corporate dividend policies and supports the notion that firms cater to investors’ dividend preferences determined by investors’ risk-taking characteristics through dividend policies. Our results underscore the importance of cultural determinants of investors’ risk-taking for the financial industry participants.