How is the impact of ESG Performance on Dividend Policy influenced by Financial Architecture, Legal Origins and Investor Protections?
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2024-07-01
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en
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First, this paper tested the relationship between ESG performance and the dividend payout ratio. Second, it examined whether this effect varies across countries with different financial architectures, legal origins, and investor protections. Based on 15,010 firm-year observations from data on 1,530 firms across 26 different countries spanning 2010 to 2021, an industry and time fixed effects panel model and a Poisson model were conducted. A positive relationship between ESG performance and dividend payout was found, indicating that higher ESG performance could reduce the cost of capital and increase the ability to pay dividends. COVID-19 years affected dividend payout negatively. Furthermore, financial architecture and a common law legal origin were found to positively affect this relationship, suggesting that in stronger markets it may be easier to find financing, and that a robust legal framework safeguards the funds of investors, making it more attractive to invest. In contrast, investor protection was found to negatively affect the relationship between ESG performance and dividend payout, implying that when there are already robust investor protections, ESG and dividends both reduce agency costs and may have a substitute effect.
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Faculteit der Managementwetenschappen