Original Research

A cross-country, macro-level investigation into earnings retention during the COVID-19 pandemic

Suzette Viviers, Nicolene Wesson
Journal of Economic and Financial Sciences | Vol 17, No 1 | a969 | DOI: https://doi.org/10.4102/jef.v17i1.969 | © 2024 Suzette Viviers, Nicolene Wesson | This work is licensed under CC Attribution 4.0
Submitted: 11 June 2024 | Published: 12 September 2024

About the author(s)

Suzette Viviers, Department of Business Management, Faculty of Economic and Management Sciences, Stellenbosch University, Stellenbosch, South Africa
Nicolene Wesson, Stellenbosch Business School, Faculty of Economic and Management Sciences, Stellenbosch University, Bellville, South Africa

Abstract

Orientation: Many shareholders rely on dividends for income. During crisis periods, managers, however, tend to retain rather than distribute earnings. Most prior research during the coronavirus disease 2019 (COVID-19) pandemic focussed on company-specific factors and industry association that favour earnings retention. As far as could be ascertained, no studies to date have investigated the role that macro-level factors could have played.

Research purpose: The authors hence examined the extent to which government efficiency, business efficiency, infrastructure, economic performance, uncertainty avoidance, long-term orientation and indulgence influenced earnings retention at listed companies in 62 countries from 2019 to 2021.

Motivation for the study: Additional insights were uncovered regarding the earnings retention decision during an economic crisis.

Research approach/design and method: Earnings retention data were downloaded from Bloomberg database, and country-level data from the International Institute for Management Development, the World Bank, Hofstede Insights and the World Federation of Exchanges. Panel regressions were used to examine hypothesised relationships.

Main findings: Contrary to expectation, earnings retention was negatively associated with the cultural dimension that measures uncertainty avoidance. The notion that less earnings would be retained in countries with high indulgence scores was, however, supported. Significant differences in earnings retention were observed across geographic regions and income groups. This descriptive study provides support for the dividend signalling theory in some countries.

Practical/managerial implications: Shareholders who rely on dividends should be mindful of signalling behaviour during economic crises.

Contribution/value-add: The findings enrich the extant literature on the earnings retention decision during an economic crisis by highlighting the importance of cultural dimensions, notably uncertainty avoidance and indulgence. Recommendations are offered to managers, shareholders and policymakers.


Keywords

earnings retention; dividends; macroeconomic factors; cultural dimensions; signalling theory; COVID-19; uncertainty avoidance; long-term orientation; indulgence

JEL Codes

F21: International Investment • Long-Term Capital Movements

Sustainable Development Goal

Goal 8: Decent work and economic growth

Metrics

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