When the heat rises: climate risk and share repurchase decisions

Drawing on signaling, stakeholder, agency, trade-off and resource-based theories, we investigate how climate change exposure influences share repurchase behavior, addressing a critical gap in the literature on climate risk and corporate financial policy. Using a panel data set of 283 US firms from 2004 to 2022, we use left-censored Tobit models in our analyses. To address endogeneity, we use a Control Function approach, complemented by heterogeneity analyses across firm characteristics, industries and macroeconomic conditions. We find a significant negative relationship between climate change exposure and share repurchases, which is amplified in smaller, financially-constrained firms and firms operating in climate-sensitive industries. This relationship persists during economic downturns and is more pronounced among firms with weaker environmental performance. These results suggest that climate risk primarily constrains the intensity of discretionary payout decisions, offering insights into how firms strategically adjust capital allocation in response to climate-related uncertainty.