ESG rating, corporate dividends policy, and the moderating role of corporate life cycle: Cross country study

Abstract

This article investigates the link between environmental, social, and governance performance (ESG) and dividend policy, as well as how likely the corporate life cycle might moderate this association. Using cross‐country data from 2010 to 2020, the findings of this study reveal that ESG has a favorable influence on corporate dividend payments as measured by dividend payout ratio, dividend yield, and dichotomous variable. This conclusion holds true when the three ESG pillars are examined independently on dividend policy measurements. Furthermore, this analysis reveals that the firm's life cycle stage moderates the association between ESG and corporate dividend policy, exhibiting a negative moderating impact. This study specifically reveals that the relationship between ESG and dividends is stronger for firms in the early stages of their life cycle than for those in the mature stages. This relationship applies to firms operating in developed economies compared to developing economies. The study findings particularly highlight the dynamic nature of the link between ESG and dividends, underlining that this relationship is dependent on the stage of a company's life cycle. Understanding this relationship may assist stakeholders, such as investors and management, in making educated decisions about dividend expectations and sustainable practices depending on the life cycle of a firm.