ESG Reputational Risk, Corporate Payouts and Firm Value

This study identifies and empirically assesses the relationship between ESG reputational risk and corporate payouts. We provide robust evidence that ESG reputational risk stimulates higher payouts and that the presence of strong (weak) monitoring mechanisms amplifies (attenuates) this relationship. Turning to payout composition we show that ESG reputational risk steers firms towards a more flexible payout mix comprising a higher analogy of share repurchases versus dividends, an effect that intensifies under financial constraints. Moreover, we document that the market places a premium on distributions from high ESG reputational risk firms. Collectively, our findings indicate that ESG reputational risk raise financial risk thus firms respond by disgorging cash via a more flexible payout regime