ESG Ratings and Dividend Policy: Evidence from Korean Listed Firms

Purpose: This study investigates the relationship between Environmental, Social, and Governance (ESG) ratings and corporate dividend policy in the Korean capital market. While prior studies generally document a positive ESG–dividend nexus, empirical evidence remains mixed, particularly in emerging markets characterized by distinct ownership and governance structures. Research design, data and methodology: Using a comprehensive panel of non-financial firms listed on the KOSPI and KOSDAQ from 2012 to 2024 and ESG ratings provided by the Korea Corporate Governance Service (KCGS), we examine whether and under what conditions ESG performance influences firms’ dividend payout behavior. Results: Employing firm-fixed effects regressions with clustered standard errors, we find that ESG composite ratings are positively associated with both dividend payout ratios and dividend yields. However, the magnitude of this association varies substantially across monitoring environments and dividend regimes. Analyses using disaggregated environmental, social, and governance component scores further reveal that governance quality exhibits the strongest and most consistent association with dividend outcomes. Conclusions: These findings indicate that ESG performance enhances shareholder payout capacity in Korea primarily under institutional settings characterized by weaker external monitoring or higher information asymmetry. By demonstrating that the ESG–dividend nexus is heterogeneous and context-dependent, this study helps reconcile mixed prior evidence and offers new insights into how sustainability practices interact with corporate payout policies in emerging markets.