ESG components and share repurchase payout

The secondary purpose of this research is to examine the relationship between share repurchase payout and each CSR dimension. Thus, there would be three different re-gression models obtained. Share repurchase payout was the dependent variable and each CSR component was the independent variable. The results of these three regres-sion models would give a concluregres-sion on whether there was consistency in the impact on share repurchase by ESG components. In addition, the result of which dimension had the strongest impact on share repurchase payout would be drawn out.

Table 9. Regression models between share repurchase payout and CSR components

According to Table 9, Prob > F = 0,000 of three models were smaller than p = 0,05. There-fore, the regression models were statistically significant to explain the relationship be-tween the dependent variable (REP) and independent variables (CSR_E, CSR_S and CSR_G). Particularly, share repurchase payout could be explained 14,73% by the envi-ronmental dimension (R-squared = 0,1473); 15,15% by the social dimension (R-squared

= 0,1515; and 15,49% by the governance dimension (R-squared = 0,1549).

The regression analysis in Table 9 gave statistic information that, for a one-unit increase in the environmental dimension, share repurchase payout was expected to increase

0,49%, since𝑒^0,00489= 1,0049; for a one-unit increase in the social dimension, share re-purchase payout was expected to increase 2,06%, due to𝑒^0,02038= 1,02058; and for a one-unit increase in the governance dimension, share repurchase payout was expected to increase 2,68%, because of 𝑒^0,02643 = 1,02678. Overall, the governance dimension had the strongest impact on share repurchase payout. Even though all three CSR dimen-sions impacted positively to share repurchase payout, this relationship was statistically significant for the social and governance dimension at the 0,1% level, while the correla-tion between share repurchase and the environmental dimension was not significant (p-value = 0,323). These results have provided quite interesting relationships between each ESG dimension and share repurchase payout during the period from 2006 to 2019 of listed companies in STOXX Europe TMI. Notably, the results are in line with previous studies. The impacts of CSR dimensions are different across geographical locations, in-dustry groups and cultures (Han et al., 2016; Velte, 2017; Miralles-Quirós et al., 2018;

Díaz et al., 2021).

Previous studies claim that the environmental dimension has a significant impact on div-idend payout (Samet & Jarboui, 2017; Benlemlih, 2019) or payout policy (Matos et al., 2020). However, the empirical results of this thesis showed that the environmental di-mension was not correlated significantly with share repurchase. In other words, there is no association between the change of the environmental score and the shift of share repurchase over the period from 2006 to 2019. In fact, the environmental dimension has become a fundamental requirement in promoting economic growth, quality of life as well as regional development and attractiveness in Europe (European Commission, 2010; TAEU 2020, 2011). The 2015 Paris Climate Change Agreement has also required investors to disclose how much climate goal will be met in their investments. Addition-ally, the EU’s members show their supports for environmental sustainability by pushing growth on green bonds, low-carbon portfolios and environmentally friendly solutions (Laidlaw, 2017). The European policymakers have introduced many legislations and tax incentives in terms of environmental protection. Nevertheless, the influence of the en-vironmental dimension is expected to be a long-term process that can take years or gen-erations to have clear effects on companies’ economic performance (Janik &

Maruszewska, 2020). Therefore, it is recommended to have further research to observe the impact of environmental activities on share repurchase. On the other hand, some studies declare that the influence of the environmental dimension in European countries is still insufficient (Despotovic, Cvetanovic, Nedic & Despotovic, 2016; Olkkonen &

Quarshie, 2019). According to CFA Institute (2019), there are still no global standards, industry benchmarks, or historical data for comparing and integrating environmental ac-tivities. Managers and investors do not have a clear idea of what are good environmental practices and how they should be implemented in the business culture. The environ-mental dimension is still expected to have more attention and actions in the next ten years. Therefore, there was no sufficient evidence showing the relationship between the environmental dimension and share repurchase payout in the period from 2006 to 2019 covered in this thesis.

Whereas the regression results revealed the positive and significant impacts of social and governance dimensions on share repurchases. It was not surprising when the gov-ernance dimension had the greatest influence on share repurchase payouts in Europe because “good corporate governance is a duty” (Monitoring Committee Corporate Gov-ernance Code, 2013). Corporate govGov-ernance has had a long tradition in OECD members since the Principles of corporate governance was launched in 1999 and 2004: every Eu-ropean business must set an organizational structure where rights and interests of share-holders are prioritized and protected, information has to be disclosed publicly and busi-ness ethics are a must. In addition, CSR performance has also boosted well-governed companies to be more transparent (Lyon, Delmas, Maxwell, Bansal, Chiroleu-Assouline, Crifo, Durand, Gond, King, Lenox, Toffel, Vogel & Wijen, 2018) and more effective when investing especially in CSR projects. Therefore, the agency problem is minimized resulted from less asymmetric information, no overinvestment in responsible projects, intensive scrutinization in using corporate resources (Ferrell, Liang & Renneboog, 2016; Cherian, Safdar Sial, Tran, Hwang, Khanh & Ahmed, 2020) leading to better payout level and policy (Bae et al., 2012; Benlemlih, 2019), particularly more share repurchases in this thesis.

Moreover, better governance is associated with a better social dimension (Ferrell et al., 2016). Specifically, companies will have higher bonuses and compensation for employ-ees. According to Samet and Jarboui (2017), managers prefer stock options as compen-sation package because the value of the stocks will decide the bonuses of employees.

Therefore, the employee will commit more to creating value for the company. On the other hand, stakeholders including suppliers, customers and the community also gain more power along with attractive benefits. Social (S) and governance (G) dimensions are so important that even during the financial crisis of 2008, there had been no pauses in social and governance commitments among European countries (Ortas, Álvarez, Jaus-saud & Garayar, 2015). Consequently, the connection between the social dimension and share repurchase payouts can be illustrated for two reasons. Firstly, when a responsible company has issued many stock option plans for employees as bonuses and compensa-tion, share repurchases will be likely adopted by managers to prevent EPS from dilution (Bens, Nagar, Skinner & Wong, 2003; Golden & Kohlbeck, 2019). Secondly, good social companies will demonstrate better well-being for employees and promote sustainable relationships with stakeholders (Freudenreich, 2020). Therefore, corporate resources and profit will be also used for these purposes before being distributed to shareholders (Samet & Jarboui, 2017). Hence, share repurchase is a good choice due to its flexibility (Brav et al., 2005).