A cross-country examination on the relationship between cash holding, dividend policies, and the moderating role of ESG ratings

Abstract

AbstractThis investigation delves into the intricate connection between dividend policy and cash holdings, while considering the joint influence of the Environmental, Social, and Governance (ESG) ratings. Our aim was to acquire a profound comprehension of how ESG impacts cash-dividends link. The analysis encompasses cross-country data spanning from 2010 to 2020. The conclusions drawn from this study align with the notion that cash holdings and dividend policy share a positive correlation. Furthermore, this study shows a significant moderation of the relationship between cash holdings and dividend policies by ESG. In companies that adopt moderate ESG practices, there exists a noteworthy positive correlation between cash holdings and dividends. However, for companies that embrace comprehensive ESG processes, the opposite holds true. This study elucidates the impact of a company’s ESG policies on its dividend payout and cash reserves. Moreover, it furnishes invaluable insights that empower management and investors to make well-informed decisions and prospects, while duly considering the influence of ESG activities.