Abstract
AbstractBased on China A‐share listed firms, we investigate how firms respond to air pollution using the dividend payout policy. We highlight the signaling role of dividends, documenting that firms pay higher dividends to appease and attract investors when facing more severe pollution. This effect is more pronounced when investor attention is high and less salient if shareholder governance is strong, reinforcing the signaling hypothesis and substitute model of dividend theory. Our results reject the hypothesis that air pollution decreases dividend payouts by enlarging a firm's financial constraints and cash flow uncertainty.
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