[Research Contribution] ESG Reputational Risk and Corporate Dividend Policy: International Evidence
5 May, 2026
Keywords: ESG incidents; Dividend payout policy; Reputational risk.
In a context where ESG (Environmental, Social, and Governance) factors are increasingly shaping how the market evaluates corporations, negative information spread through media channels can amplify reputational risk and directly impact financial policies. In response to this reality, a research team from the University of Economics Ho Chi Minh City (UEH) analyzed data from 11,535 firms across 69 countries from 2007 to 2019, revealing that when ESG reputational risk increases, firms tend to raise dividend payouts as a tool to stabilize market confidence. Specifically, a one-standard-deviation increase in ESG reputational risk corresponds to a 2.5% increase in the payout ratio.
When ESG is No Longer a “Choice,” But a Pressure
In the era of digital media and globalization, corporate reputation has shifted from an intangible asset to a factor that can be “priced” through market reactions. A single piece of negative information related to social responsibility can spread rapidly within a short time, increasing reputational risk and directly impacting financial decisions. ESG, therefore, is no longer a strategic choice but a constant pressure—where firms must both build an image and face the risk of a crisis if controls are lacking.
Although the role of reputational risk has been discussed in many studies, empirical evidence on a global scale, particularly in relation to media and institutional differences, remains limited.
Given this context, the study poses a central question: When negative ESG-related information spreads widely in the media, how do firms adjust their dividend policies and internal operating mechanisms under different institutional conditions?
To answer this, the research focuses on analyzing firms globally affected by ESG reputational risk, emphasizing the relationship between negative media information and dividend payout policies. Simultaneously, the study examines the role of corporate governance factors and national institutional environments—including rule of law, investor protection levels, and the effectiveness of public enforcement—in shaping firms’ financial responses.
Based on this framework, the study utilizes a dataset of 11,535 firms across 69 countries to clarify the impact of negative ESG information on dividend policies. Furthermore, reputational risk is analyzed in connection with internal firm factors such as free cash flow, agency costs, and CSR performance, thereby providing a comprehensive view of the mechanism by which firms respond to ESG information shocks.
Dividends Are Not Just Profits, But Also “Market Signals”
Dividends as a “Reputational Shield”
This study examines the impact of ESG reputational risk—particularly stemming from negative information disseminated through media channels—on the dividend payout policies of publicly listed firms globally. The research findings indicate that when ESG reputational risk increases, firms choose to increase dividends as a “reassurance signal” to shareholders, aiming to protect market confidence and mitigate reputational damage. Thus, ESG not only reflects sustainability activities—it directly shapes strategic financial decisions. In a context where reputational risk is increasingly tied to investment capital flows, dividends become an effective tool for stabilizing confidence and demonstrating financial strength.
Environmental Reputation Plays a Crucial Role Among ESG Pillars
The study further decomposes the composite reputational risk index into its individual ESG components. The results show that environment-related risks have the strongest impact on dividend policies. In the context of global green transition, negative events such as pollution or environmental regulation violations readily cause severe damage to corporate reputation and trigger strong investor reactions. Therefore, when reputational risk originates from environmental issues, firms tend to increase dividend payouts even more to reinforce market confidence and protect valuation. This indicates that the environmental factor plays a key role in driving firms to use dividends as a “reputational shield.”
When Institutions Are Weak, Dividends Become an Even More Important “Substitute Signal”
The study also reveals that the impact of reputational risk on dividend policies is stronger in countries with weak institutional quality. In economies where legal systems are weak, investor protection levels are limited, and transparency mechanisms are ineffective, firms find it difficult to rely on formal institutions to build trust. In such contexts, dividends become an important substitute tool. Firms use payout policies as a tangible commitment to shareholders, aiming to mitigate market concerns and compensate for the lack of formal protection mechanisms. This demonstrates that the institutional environment not only influences corporate governance but also shapes how firms financially respond to ESG reputational risk.
The Stronger the Firm, the Clearer the “Dividend Signal”
Further analysis shows that the relationship between reputational risk and dividend payouts is particularly pronounced in firms with strong financial foundations, especially those with higher levels of free cash flow. Rather than retaining all profits for reinvestment, these firms are willing to distribute a portion of their profits to reinforce market confidence and mitigate the impact of negative ESG information. In other words, for firms with “financial leeway,” dividends are not merely a business outcome—they are a strategic choice aimed at protecting reputation and maintaining market standing.
Policy and Strategic Implications
Based on these empirical results, the study offers several important implications for firms and policymakers in responding to ESG reputational risk and managing reputation.
First, dividends should be viewed as a reputation management tool. In a context of increasing ESG reputational risk, adjusting dividends is not only a profit distribution decision but also a market reassurance signal to strengthen shareholder confidence. Firms need to proactively integrate reputational risk factors into dividend policies and transparently communicate financial strategies to mitigate negative market reactions.
Second, there is a need to enhance institutional quality and ESG information transparency. Regulators should improve disclosure standards, strengthen ESG supervision, enhance law enforcement effectiveness, and create conditions for transparent market operations, reducing firms’ reliance on dividends as a self-protection tool.
Third, environmental governance must be prioritized within the overall ESG management strategy. As environmental risk has the strongest impact on dividend payout responses, firms need to invest significantly in environmental control systems, ecological impact assessments, and transparent information disclosure. Mitigating environmental incidents not only limits reputational damage but also helps firms avoid the pressure to increase dividend payouts in response to credibility crises.
Finally, financially strong firms should use dividends as a “reputational shield,” while weaker firms should prioritize substantive ESG improvement. Companies with high profitability and abundant resources should flexibly use dividends as a reputational protection tool. Conversely, firms with limited resources should not pursue high payout policies but focus on improving internal ESG performance—building a sustainable foundation rather than addressing short-term risks.
Read the full article “ESG Reputational Risk and Corporate Dividend Policy: International Evidence” HERE.
Author Team: Dr. Le Anh Tuan, Tran Phuong Thao, Vu Phuong Linh – UEH.ISB Talent School – University of Economics Ho Chi Minh City
This article is part of a series disseminating research and applied knowledge with the message “Research Contribution For All,” implemented by UEH in coordination with Khanh Hoa Province’s News, Radio, and Television, aiming to accompany the sustainable development of Khanh Hoa Province. UEH respectfully invites readers to watch the next Knowledge Science Bulletin.
News, Photos: Authors, UEH Department of Communications and Partnerships
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