Corporate social responsibility and payout decisions

Marwa Samet · Anis Jarboui

68 citations0/0 files storedManagerial Finance

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Corporate Finance and Governance Corporate Social Responsibility Reporting Corporate Taxation and Avoidance

Abstract

Purpose The purpose of this paper is to investigate whether and how corporate social responsibility (CSR) performance contributes to shape firms’ payout policy. In particular, it examines the influence of CSR performance on payout level and payout channel choice (dividend payment or share repurchases). Additionally, it examines the moderating role of CSR performance in the relationship between dividends and share repurchases. Design/methodology/approach Using 397 European companies listed in the STOXX Europe 600 over the period from 2009 to 2014, the authors employ regression analysis to explore the link between CSR performance and payout policy. Findings The first result shows that firms with high CSR performance engage more in payout policy. Second, when choosing between paying dividends and repurchasing stocks, firms with high CSR performance tend to prefer share repurchases. Finally, CSR performance plays an important role in determining the relationship between dividends and repurchases. Specifically, dividends and share repurchases seem to be more substitutable among socially responsible firms. Practical implications Firms that are able to develop successful CSR strategies can generate tangible benefits for their shareholders in the form of high payout levels. An increase in CSR expenditure does not lead to cut or minimize the cash flow paid out to shareholders. In addition, government and regulators have to oblige or at least encourage socially responsible firms to use executive stock option that are dividend protected, in order to reduce distortions in dividend policy. Originality/value This is the first attempt to investigate the association between CSR performance and share repurchase activities.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 2010Strategic management a stakeholder approach 1986Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers 1996Agency costs of free cash flow, corporate finance, and takeovers 1995A Stakeholder Framework for Analyzing and Evaluating Corporate Social Performance 1997THE CORPORATE SOCIAL PERFORMANCE-FINANCIAL PERFORMANCE LINK 2014The Impact of Corporate Sustainability on Organizational Processes and Performance 2013Corporate social responsibility and access to finance

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