Article2012

Corporate investment in social responsibility versus dividends?

92 citations0/0 files storedSocial Responsibility Journal

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Corporate Social Responsibility Reporting Corporate Finance and Governance Corporate Governance and Financial Management

Abstract

Purpose The paper aims to examine whether corporate investment in social responsibility takes away from expected dividends. Design/methodology/approach The article builds two hypotheses that are tested empirically through the analysis of 17,670 US firm‐year observations covering the period 1991‐2007. The tests are conducted in both univariate and multivariate settings. Findings The evidence supports the hypothesis that mature firms tend to invest more in corporate social responsibility (CSR). Specifically, firms investing highly in CSR tend to be larger, more profitable, and with greater earned (rather than contributed) equity. The evidence also supports the hypothesis that CSR investment does not subtract from dividends. Instead, CSR effort and dividend tend to increase together. Thus, CSR investment tends to be effected by companies who can afford it, and it does not lower value by lowering investors' expected payout. Practical implications These results imply that spending resources on CSR does not lower the cash flows paid out to investors. When combined with the finding that CSR lowers the cost of equity, they also mean that CSR increases the value of a company's stock. Originality/value This is the first study that explicitly links CSR to the dividend flow.

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References

2010Strategic management a stakeholder approach 2003Corporate Social and Financial Performance: A Meta-Analysis 2003Misery Loves Companies: Rethinking Social Initiatives by Business 2010Does Corporate Social Responsibility Affect the Cost of Capital?1956DISTRIBUTION OF INCOMES OF CORPORATIONS AMONG DIVIDENDS, RETAINED EARNINGS AND TAXES 2001Disappearing dividends: changing firm characteristics or lower propensity to pay?2005Payout policy in the 21st century 2006Dividend policy and the earned/contributed capital mix: a test of the life-cycle theory☆

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