How Sustainable Disclosure Shapes Dividend Policy: Using the Moderating Role of Environmental Controversies

ABSTRACT The present study investigates the relationship between corporate environmental disclosure and dividend policy. The study also examines the moderating role of environmental controversies in the relationship between corporate environmental disclosure and dividend policy. A sample of 2579 listed firms from European countries was selected, and fixed‐effect, GMM, and quantile regression methodologies were employed. The result suggests that corporate environmental disclosure reflects the importance of environmental practices in shaping payout policies. The result also suggests that firms become more effective at enhancing dividend outcomes when they actively manage controversies. The findings are robust with GMM and quantile regression. This study is the first to combine various measures of corporate environmental disclosure, including CSR strategy scores, Environmental Pillar Scores, ESG Scores, Green Building Scores, and Emissions Scores. It also incorporates financial metrics such as cash dividends paid, net common stock buybacks, dividend payout ratio, dividend yield, and common stock dividends. The aim is to thoroughly examine the relationship between these factors and dividend policy in European countries.