The Impact of ESG Performance and Corporate Governance on Dividend Policies: Empirical Analysis for European Companies

Understanding how ESG performance and corporate governance practices influence financial policies has become increasingly critical for investors, regulators, and other stakeholders. This study specifically examines the simultaneous independent effects of corporate social responsibility (CSR) performance and board characteristics on the dividend payouts (DIV) of European companies. To control for unobserved heterogeneity within firms, we initially used fixed and random effects models (FE and RE). Additionally, to address potential endogeneity issues and capture the dynamic nature of dividend behavior, the System Generalized Method of Moments (SGMM) approach was performed as a robustness check. The analysis is based on a comprehensive panel dataset covering 1376 firms across 23 European countries over the period 2014–2023. Empirical results from both FE and RE models and SGMM indicate that CSR performance, gender diversity, cultural diversity, and financial expertise on the board positively influence dividend payouts, while larger board size, greater board independence, and CEO duality are associated with lower dividend payouts. These findings highlight the critical role of ESG and governance factors in shaping corporate financial policies and provide valuable insights for policymakers, investors, and corporate managers.