Examination of the effect of esg ratings on dividend payouts and future earnings growth relationship: The case of Turkey

This study aims to examine how Environmental, Social, and Governance (ESG) ratings influence the relationship between dividends and earnings growth in Turkey. By addressing this research question, the study seeks to enhance our understanding of how ESG ratings influence the correlation between dividends and future earnings growth, while considering potential effects of other financial variables. The final sample covers a period of 10 years (2012-2021) with 26 cross-sections. The findings of this study provide insights into the relationship between dividends, earnings growth, and ESG ratings in the Turkish context. Importantly, the study demonstrates that ESG ratings have a positive and significant impact on future earnings growth. Firms with higher ESG ratings in Turkey are more likely to experience higher future earnings growth, indicating that integrating environmental and social considerations, along with strong governance practices, can contribute to improved long-term financial performance and growth prospects. Furthermore, the study finds a negative and significant interaction between ESG ratings and dividend payout, suggesting that the combined effect of higher ESG ratings and increased dividend payouts may dampen future earnings growth. In conclusion, this study contributes to our understanding of the influence of ESG ratings on the relationship between dividends and earnings growth in Turkey. The findings highlight the importance of considering ESG factors in corporate decision-making and strategic planning to enhance future earnings growth potential. By integrating sustainable business practices, maintaining high ESG ratings, improving profitability, and investing in future assets, Turkish firms can foster long-term financial success and resilience.