We are watching you: are you ready to pay dividends?

Abstract

This study investigates the relationship between media visibility and dividend policy. We argue that this media activity affects how dividend policy is determined, as it might impact agency conflicts, information asymmetry, and the firm's dependence on investors' preferences. Using a sample of 93 Spanish listed firms over the period 2004–2019, we show that media coverage has a positive effect on dividends and that the scrutiny from media coverage can encourage managers and dominant owners to pay dividends in an effort to boost their public image and reputation. Consequently, the results indicate that media exposure leads to dividend smoothing as a way to build a good reputation, which is conducive to attracting funds from external investors. Our results are robust to the use of alternative measures of media visibility and dividends as well as different procedures to address endogeneity issues.