Can Air Pollution Reshape Corporate Dividend Policy? Evidence from China

Abstract

Based on China-listed firms, we investigate the relationship between air pollution and dividend payout. We document that air pollution promotes firms to pay higher dividends, and address the endogeneity by regression discontinuity design (RDD) and instrument variable (IV) regression. Furthermore, air pollution exacerbates information asymmetry and drives more public attention. In response, firms increase their dividend payments. Our results reject the hypothesis that air pollution increases dividends payout by enlarging a firm’s financial constraints and cash flow uncertainty. Cross-sectional analysis shows that the increase in dividend payout is weaker in state-owned enterprises, but is not affected by the heavily-polluting industries.

Keywords: Air pollution, dividend payout, information asymmetry