ESG performance, R&D investment and dividend policy: international evidence

This article investigates how firms’ environmental, social and governance (ESG) performance and research and development (R&D) intensity affect dividend policy, and how ESG performance shapes the relationship between R&D intensity (RDI) and dividend payout. Using a panel of 5590 firms across 75 industries in 81 countries from 2002 to 2023, we find that firms with stronger ESG performance pay higher dividends than lower-performing peers. In the baseline ordinary least squares (OLS) pillar regressions, the social score exhibits the largest direct association with dividend payout, while the governance and environmental pillars are also positively associated with payout. We also document that RDI is negatively related to dividend payouts, but this effect is positively moderated by ESG performance, indicating that firms with stronger ESG performance are better able to sustain dividend distributions while undertaking innovation investment. These results are robust to alternative model specifications, alternative ESG proxies, including ESG combined score (ESGC), and a two-stage least squares (2SLS) instrumental-variable approach. Overall, the findings suggest that ESG performance not only supports dividend payouts directly, but also mitigates the payout-reducing effect of RDI.