Social capital and dividend policies in US corporations

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.