How do online media affect cash dividends? Evidence from China∗

The rapid development of online media has significantly influenced corporate decision-making processes to varying extents. Using a comprehensive dataset for Chinese listed companies from 2009 to 2021, we find that online media attention is negatively associated with cash dividend level, supporting the “substitute model” but not the “outcome model”. Mechanism analyses show that online media reduce cash dividend level through signaling substitute effect. Specifically, online media coverage transmits positive signals about the company to the market in advance, reducing the insiders' inclination to use cash dividends as a signaling tool. Additionally, we exclude online media's governance substitute effect and market pressure's negative effect. Notably, our findings indicate that only firms with more positive news distribute dividends that exert a signaling effect, suggesting a synergistic relationship between positive news and dividend signaling. The impact of online media on excessive dividends is insignificant, further emphasizing the signaling substitute effect of online media. Moreover, traditional media's influence on dividend policy is also insignificant, implying that online media transcend the limitation of traditional media and bring forward-looking information. In summary, our results offer empirical support for research exploring the relationship between online media and the real economy, while also contributing to the literature on dividend signaling theory.