Do environmental controversies lead to lower dividend payouts? The role of environmental performance and board gender diversity

This study examines the intricate relationship between environmental controversies and corporate dividend policy, while simultaneously investigating the effect of environmental performance and board gender diversity on this relationship. Existing studies identify several factors as determinants of corporate dividend policy; however, how environmental controversies affect dividend payouts remains underexplored. Using 5225 observations of publicly listed firms in European Union countries between 2016 and 2023, we find that firms involved in environmental controversies are less likely to distribute cash dividends. Moreover, we find that environmental performance significantly impacts the relationship between environmental controversies and dividend payouts. However, this effect exacerbates the detrimental impact of environmental controversies, while board gender diversity does not significantly affect this relationship. Further analyses show that the adverse effects of environmental controversies on dividend payouts are heterogeneous across various industry characteristics and levels of environmental disclosure maturity. We also find that earnings and risk are critical channels through which environmental controversies reduce dividend payouts. Finally, we find that environmental controversies predict future dividend policies. Overall, our findings offer valuable insights to numerous stakeholders regarding the influence of corporate environmental practices on financial decision-making.