Corporate ESG performance and abnormal cash dividends

Abstract

Abnormal dividend distributions can signify financial risk or neglect of investor interests. This study examines the impact of ESG performance on abnormal cash dividend payouts by analyzing a sample of A-share listed companies in China from 2009 to 2022. Our findings indicate that high ESG performance mitigates insufficient dividend distributions (e.g., abnormally low dividend payouts). This effect is driven by mechanisms such as reduced agency costs, improved information transparency, and eased financing constraints. Furthermore, our study reveals heterogeneous effects of ESG performance on abnormal dividends based on ownership structure, industry type, and analyst attention. Companies with dispersed ownership, operating in non-high-tech industries, and those with lower analyst attention exhibit stronger reductions in abnormal dividend payouts under good ESG performance. Additional analyses show that each sub-dimension of ESG significantly reduces abnormal dividend payout behavior. After reducing abnormal payouts, corporate ESG performance effectively lowers corporate risk and significantly improves production efficiency. This study contributes to the understanding of how corporate ESG practices influence financial decision-making.