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ESG reputation risks, cash holdings, and payout policies

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  • Wong, Jin Boon
  • Zhang, Qin

Abstract

This paper examines the financial implications of environmental, social, and governance (ESG) reputational risks and evaluates if excessive cash holdings and corporate payout policies can play influential roles in firm valuation by investors. We find empirical evidence suggesting that when ESG reputational risks intensify, investors particularly penalize the stock price of firms with excessive or high cash levels. This effect is particularly pronounced when managers do not employ any form of corporate payout policies. It is observed that cash distributions in the form of dividend payments or share repurchases may help mitigate shareholders’ antipathy to excessive and high cash holdings. Further analysis reveals that investors may view refinancing risks as a positive moderating factor for high levels of cash holdings during negative ESG shocks.

Suggested Citation

  • Wong, Jin Boon & Zhang, Qin, 2024. "ESG reputation risks, cash holdings, and payout policies," Finance Research Letters, Elsevier, vol. 59(C).
    • Handle: RePEc:eee:finlet:v:59:y:2024:i:c:s154461232301067x
    DOI: 10.1016/j.frl.2023.104695
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    More about this item

    Keywords

    ESG; Reputation risks; Information asymmetry; Cash; Payout policy;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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