Balancing sustainability and financial stability: examining the effect of ESG on corporate financial distress with dividend payout policy as a moderator: an analysis across different stages of country development

Abstract

This study examines how environmental, social and governance (ESG) affects corporate financial distress (CFD) and assesses the role of dividend payout policy (DPP) in moderating this relationship. Analysing a global dataset of 49,211 firm-year-observations from 2006 to 2023, we find that ESG is associated with increased CFD. Moreover, we find that a robust DPP may mitigate the increased distress risk. We also conduct an analysis across different stages of country development. Our findings further strengthen the statistically significant, positive link between ESG and CFD while revealing no clear statistical significance across different models for the moderating effect of DPP.