Using an advanced measure of corporate integrity derived from textual analysis of earnings conference calls, we show that firms with stronger corporate integrity distribute significantly larger dividends. Consistent with agency theory, greater integrity reduces agency conflicts and encourages managers to return excess cash to shareholders. In doing so, high-integrity firms back rhetorical signals of honesty with the tangible financial commitment of dividends, transforming ethical claims into verifiable financial actions. Using more than 50,000 U.S. firm-year observations from 2001 to 2018, we find that the positive effect of corporate integrity on dividend payouts is particularly strong in firms where profitability is closely linked to integrity. Our multinomial logistic regression analysis further reveals that high-integrity firms prefer dividends over share repurchases, consistent with the stronger commitment and governance role of dividends. A range of robustness tests, including propensity score matching, entropy balancing, and instrumental-variable analysis, confirm the results. Overall, the findings highlight how ethical corporate culture can shape important financial policies and reinforce credible governance.
Likitapiwat et al. (Sun,) studied this question.
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