Beyond profits: exploring the role of religion in shaping financial decision-making on global dividend policies

Abstract

Purpose
This study investigates how an informal institution in the shape of religion shapes corporate dividend policies across countries. It examines both the direct influence of dominant religious affiliations and the moderating roles of national culture and legal origin.

Design/methodology/approach
Using a comprehensive panel of 45,899 listed firms from 90 countries over the period 1987–2019 (344,014 firm-year observations), we employ Logit models to analyse dividend payment propensity and Tobit models to estimate dividend size. Religion is measured at the national level by the dominant religious affiliation, while Hofstede's cultural dimensions and legal origin (common vs. civil law) are incorporated as moderators. Robustness tests include cultural interactions, legal traditions and dynamic panel estimations with lagged dividends to address potential endogeneity.

Findings
We find robust evidence that religion influences dividend policy. Catholic, Hindu, Indigenous, Jewish, Islamic and Orthodox contexts are positively associated with dividend payments and sizes, while Atheist, Buddhist and Protestant contexts exhibit negative associations. The moderation results show that Hofstede's Uncertainty Avoidance Index (UAI) amplifies Catholic and Islamic tendencies toward higher payouts while reinforcing Protestant restraint. Legal origin further conditions these effects: in Common Law systems, results align with the outcome hypothesis, where strong shareholder rights discipline payouts; in Civil Law systems, findings support the substitute hypothesis, with higher dividends used to compensate for weaker investor protection.

Research limitations/implications
This research provides evidence that religious background significantly shapes corporate dividend policy, implying that religious affiliations may be as important as the personal traits of executives in shaping corporate financial decisions. This highlights how religious contexts can moderate traditional influences, such as legal origin and national culture, thereby affecting how companies set their dividend policies.

Originality/value
This study makes three contributions. First, it extends the scope of prior literature by analysing nine major world religions, rather than focussing narrowly on Protestant, Catholic or Islamic contexts. Second, it demonstrates how religion interacts with broader institutional environments, national culture and legal systems to shape financial outcomes, thereby advancing theoretical integration between finance and sociology. Third, by employing a uniquely large and diverse cross-country dataset over 3 decades, it offers one of the most comprehensive examinations of the intersection between religion and corporate payout policy.