Environmental Pollution and Dividend Policy: Evidence From Chemical Spills

Abstract

We exploit major chemical spills that trigger large-scale evacuations as pollution shocks to neighbouring firms to examine their impact on corporate dividend policies. In the aftermath of a major spill, exposed firms significantly reduce their dividend payouts. This effect is more pronounced among firms that show lower profitability, greater cash-flow uncertainty and higher financial distress risk. Our analysis further reveals that major spills increase regulatory scrutiny in affected counties and that the negative spill–dividend relation is concentrated in polluting industries, consistent with the view that heightened regulatory risk may play a significant role in contributing to dividend reductions.