ESG Reputational Risk, Corporate Payouts and Firm Value

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This study holds substantial importance as it unravels the intricate interplay between ESG reputational risk, corporate payouts, and firm value within the US market context. By showcasing the link between ESG reputational risk and higher payouts, especially in the context of free cash flows and financial constraints, it sheds light on how firms navigate their payout strategies in response to reputational risks. Additionally, the findings regarding the composition of payouts—favoring share repurchases over dividends—amidst higher ESG reputational risk underscore the nuanced financial decisions made by firms under such circumstances. Moreover, the market's favorable valuation of payouts from high ESG risk firms highlights investor perceptions and preferences in relation to sustainability and corporate responsibility. Understanding these dynamics is crucial for investors, corporate governance, and policymakers in comprehending the implications of ESG reputational risks on corporate financial behaviors and market valuations, thereby fostering more informed decision-making towards sustainable and responsible business practices.

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