Impact of National Culture on Financial Decisions of the Firms: Evidence from Worldwide Non-Financial Companies
This study analyzes impact of national culture and formal institutions, along with rm specic determinants as control variables, on and cash holdings for the period from 2007 to 2016 in respect of overall sample and regions including Africa, Asia Pacic, Europe, Middle East, North America and South America . There are 47 countries and 5,947 rms grouped into six regions for the purpose of analysis. Generalized Method of Moments (GMM) is used for analysis to deal with endogeniety. The results show that Power distance has signicant negative eect on for overall sample, Europe and North America. It is signicantly and positively related with dividend payment for Africa, Asia Pacic and South America. The managers of rms in regions with weak governance pay more dividend to develop reputation among shareholders even if Power distance is higher in said regions. The effect of Individualism on is signicantly positive for all the regions except Middle East. Uncertainty avoidance , Long Term Orientation and Masculinity have signicant negative effect on dividend payment for overall sample and almost for all regions under study. Power Distance Index has signicant negative effect on cash holdings for Africa, Asia Pacic and Middle East and is positively related with cash reserves for Europe and no signicant relationship for overall sample, North America and South America. Individualism has signicant negative effect on cash holdings for almost all the regions. Uncertainty avoidance, Masculinity and Long term orientation have signicant positive effect on cash holdings for overall sample, and other regions under study. Further, impact of formal institutions including worldwide governance index, shareholder rights index, creditor rights index and nancial development on dividend payment and cash holdings is analyzed across the regions. The mixed effect of formal institutions on dividend payment and cash holdings is due to effectiveness of dierent constituents of formal institutions with varying levels across the regions. The most important result is that Interaction of world-wide governance index with different cultural dimensions shows moderating role of country governance for dividend payment and cash holding decisions around different regions of the world including overall sample. Firm specic variables have also shown signicant impact on dividend payment and cash holdings for overall sample and other regions under study. The implication of these results is that national culture has role in dividend and cash holding decisions by interacting with formal institution which plays role of moderator in explaining said decisions around different regions of the world.