Advertising expenditures and dividend policy: Evidence from an emerging market

The aim of this paper is to document the effect of advertising expenditures on the dividend policies adopted by non-financial firms from India firms during the period between 2000 and 2019. Our results show that advertising expenditures have a significantly positive impact on dividend payout ratios. Our results are robust across various proxies of advertising expenditures and dividend policies. These results are consistent with the argument that advertising expenditures improve the information environment of firms by increasing their visibility among stock market participants. Superior information environment makes expropriation technology expensive and leads to greater sharing of corporate profits. Furthermore, our findings also show that dividend payouts are more valuable for firms that incur low advertising expenditures. It indicates that dividend payouts improve firm value more when information environment is opaque.