How biodiversity risk shapes corporate dividend decisions

Purpose
Recent research has emphasised the impact of textual analysis-based environmental measures on corporate financial decision-making. In this regard, an emerging stream of research focuses on the impact of firm-level exposure to biodiversity risk. This study adds to the literature by examining the impact of biodiversity risk on dividend payout policy.

Design/methodology/approach
We use a large dataset of 30,652 firm-year observations from 3,220 unique US-listed firms for the period 2001–2020. Our baseline model uses ordinary least squares (OLS) regressions. We consider several endogeneity tests, including staggered adoption of state-level climate change action plans, 2-stage least squares (2SLS) with an instrumental variable, and entropy balancing to ensure robustness.

Findings
Our results show that increased exposure to biodiversity risk is associated with lower dividend payouts. Cash flow and earnings volatility act as channels driving this relationship. We also find that firm life cycle, financial constraints, CEO age, and withdrawal from the Paris Agreement moderate this relationship.

Originality/value
This study adds to the growing literature on the impact of biodiversity risk exposure on financial decision-making. By highlighting the importance of biodiversity risk to corporate stakeholders, this study enriches the broader discourse on climate finance and corporate finance strategies.