Climate Risk and Payout Flexibility Around the World

Abstract

Using a large sample of firms from 45 countries, we find that firms in countries with high climate risk reduce their cash dividends but increasingly use share repurchases to make payouts. The evidence suggests that firms substitute dividends with repurchases to increase their payout flexibility in response to heightened climate risk. Further analysis shows that the effect of climate risk on payout flexibility is more pronounced for firms that are more vulnerable to climate risk, and in countries where people are more concerned about climate risk. Our results help understand how climate change impacts firms’ payout policies.

Keywords: Climate risk, payout flexibility, dividend substitution, share repurchases, culture