Abstract:

Convention wisdom suggests that firms with high Environmental, Social, and Governance (ESG) ratings would curb short-term oriented activities, such as stock repurchases conducted to meet the EPS targets. However, we present puzzling evidence that EPS-motivated repurchases are positively associated with the ESG ratings, mainly coming from its environmental and governance components. We provide an explanation to this puzzle that the long-run stock out-performance following EPS-motivated repurchases is significant, which could make firms favor such repurchases in the cost of their ESG ratings. Furthermore, we show that financial reporting opacity following EPS-motivated repurchases is equally severe for firms with high ESG ratings, hence implying the presence of “greenwashing.”