Local Creative Culture and Corporate Dividend Decisions

Abstract

The questions of whether to pay dividends or not and how much to pay have been a subject of aca-demic research for decades. One key area affecting the corporate dividend decisions is investor’s dividend demand – if company owners see special value in receiving (or not receiving) dividend returns, this does have an effect on the corporate payout policy.

One remarkable part of the research on dividend demand is how various demographic factors like investor age, income level and culture have an effect on how investors think of dividends. As the most relevant example for my thesis, Becker et al. (2011) argue that U.S. companies headquartered in a county with a large share of population aged 65 or over are more likely to pay dividends, initiate dividends and have a higher dividend yield than an average company.

Richard Florida (2002b) has presented that creative professionals and their number would be a central factor in evaluating the competitiveness of different locations in the future. Ucar (2018b) finds a connection between the high share of local creative professionals in a specific county and various financial metrics of locally headquartered companies. According to Ucar’s hypothesis, this is due to link between creativity and risk-taking.

In my thesis I study whether there exists a negative connection between the share of creative pro-fessionals in U.S. counties and the dividend payout policy of local companies. No peer-reviewed research has previously been published on the subject. My sample consists of listed U.S. companies between 1990 and 2007. The number of creative professionals in each U.S. county has been defined based on the results of U.S. decennial censuses.

I find a significant negative relationship between the share of creative professionals and company dividend payout policy with all key variables observed. However, based on the robustness checks performed it is uncertain that the phenomenon is caused by dividend demand of exactly creative professionals; the share of creative professionals is very highly correlated with the share of highly educated population and highly correlated with the median income.

My thesis adds to prior knowledge of the effect of creativity as a driver of financial decisions and dividend demand. My baseline results are in line with just recently published working paper by Ucar and Staer (2018) on the same subject, but I am more conservative on how big the explanatory power of creativity is after controlling for other demographic variables.