ESG reputation risks, cash holdings, and payout policies

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.

Automated summary

This paper examines the financial implications of ESG reputational risks and finds that investors penalize firms with excessive cash holdings when these risks intensify. However, cash distributions can mitigate shareholders' antipathy towards excessive cash holdings.