Environmental Concerns and Impression Offsetting: New Evidence on Dividend Payout

We apply the impression management theory and propose that firms located in more polluted areas have strong incentives to offset the negative perceptions of their local area pollution due to shareholders’ environmental concerns. In terms of dividend policy, we predict and find that location greenness (LG), a proxy for environmental image, negatively affects firms’ dividend payouts. The effect is more pronounced for firms with high information asymmetry and agency costs. The dividend payouts due to LG have a larger impact on agency cost reductions than regular dividends. Firms use dividends and social engagements as substitutes to enhance their reputation.