Dirty Money. The Impact of Negative ESG News Sentiment on Dividend Consumption

40 Pages Posted: 27 Sep 2023 Last revised: 28 Sep 2023

See all articles by Marten Laudi

Marten Laudi

University of Bremen - Faculty of Business Studies and Economics

Thomas Pauls

Goethe University Frankfurt

Paul Smeets

University of Amsterdam

Date Written: September 2023

Abstract

Using a large European bank dataset, we show that in response to negative ESG news exposing controversial business practices of dividend-paying firms, investors amplify their consumption from dividend income, compared to dividends from non-controversial firms. This increased consumption is immediate, occurring on the dividend payout day. We control for selection effects and rule out attention and adjustments to the dividend payout size as mechanisms. Instead, our results are consistent with laboratory evidence showing that people who earn money by violating social norms counter resulting negative emotions with mood-enhancing behavior, such as increased consumption. This aligns with the principles of emotion regulation theory. We demonstrate the applicability of emotion regulation theory outside of the laboratory in an important real-world context, financial markets.

Keywords: Behavioral Finance, Household Finance, ESG

JEL Classification: D14, G11, G41

Suggested Citation

Laudi, Marten and Pauls, Thomas and Smeets, Paul, Dirty Money. The Impact of Negative ESG News Sentiment on Dividend Consumption (September 2023). Available at SSRN: https://ssrn.com/abstract=4574351 or http://dx.doi.org/10.2139/ssrn.4574351

Marten Laudi (Contact Author)

University of Bremen - Faculty of Business Studies and Economics ( email )

Bremen, D-28359
Germany

HOME PAGE: http://martenlaudi.com

Thomas Pauls

Goethe University Frankfurt ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Paul Smeets

University of Amsterdam ( email )

Plantage Muidergracht 12
Amsterdam, 1018TV
Netherlands

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