Corporate social responsibility and the wealth gains from dividend increases

Abstract

This study examines whether corporate social responsibility (CSR) influences the stock price response to dividend increase announcements and changes in subsequent operating performance. We find that dividend increasing firms with lower CSR scores elicit higher abnormal announcement returns and greater improvements in industry‐adjusted operating performance. These findings support the argument in the literature that socially responsible firms are more transparent and commit to higher ethical standards than other firms, suggesting that they suffer fewer agency and informational problems (Kim, Park, & Wier, 2012). Consequently, larger dividend payouts reduce agency costs in firms with lower CSR commitments, thereby generating higher wealth gains for shareholders.

Corporate Social Responsibility, Corporate Life Cycle, and Dividend Policy

“…The negative path coefficient value of -0.143 suggests that the relationship between the two variables is not in the same direction, meaning that increasing CSR activities will decrease dividends, but it will occur at the T-value of 2.463 or higher than the T-table of 1.96. This finding is consistent with (Cheung et al, 2018;Glegg et al, 2018;and Ni & Zhang, 2019) study that argued some firms may tend to pay fewer dividends because CSR activities lower the cost of equity, encouraging firms to invest cash rather than to pay dividends as the first view but in the second view the CSR activities increases earnings and hence dividend payouts so, this result inconsistent with the prediction of "the earnings channel" because CSR activities can lower the cost of equity capital, which in turns provides incentives for firms to invest or hoard cash rather than to pay dividends. This result inconsistent with (Rakotomavo, 2012;Kim & Jeon, 2015;Samet & Jarboui, 2017;and Benlemlih, 2019) that argued that firms with high CSR may use dividend policy to mitigate the agency problems resulting from overinvestment in CSR.…”

“…Statistical analysis showed that there is a negative relationship between CSR and DIV. This result support theoretical arguments that firms engaged in CSR activities have low dividends (Cheung et al, 2018;Glegg et al, 2018;and Ni & Zhang, 2019). This result may justify as result to the global awareness of the role of the CSR in the society.…”

“…Whenever 'The cost of equity capital channel' depicts a negative relation because CSR activities can lower the cost of equity capital, which in turns provides incentives for firms to invest or hoard cash rather than to pay dividends. Glegg et al (2018) explore whether corporate social responsibility (CSR) influences the stock price response to dividend increase announcements and changes in subsequent operating performance using a sample of 2800 dividend increases from 1995 to 2012. Shows that dividend increasing firms with lower CSR ratings elicit significantly higher abnormal announcement returns compared to dividend increasing firms with higher CSR ratings.…”

Corporate social responsibility and dividend policy in Sri Lankan firms: A data triangulation approach

“…Benlemlih (2019) proposed that companies with high socially responsible initiatives have a tendency to use dividend policy as a controlling mechanism to manage agency problems between stockholders and the management. In contrast to the aforementioned findings, Gleg, Harris, and Ngo (2018) stated that companies with higher dividends and lower socially responsible initiatives are inclined to have greater returns and improved operating performance with lower informational and agency conflicts. Hence, shareholder wealth maximization is higher for firms with high dividend payouts and lower CSR initiatives.…”

Do Employee Stock Ownership Plans Affect Corporate Social Responsibility? Evidence from China

“…Previous literature has well documented that CSR is a key activity that affects firm reputation [33]. At the same time, some studies have found that there is also a positive relationship between CSR and shareholder value [37,38]. For example, Lins et al [39] found that the stocks of higher CSR firms performed better than those of lower firms during the 2008-2009 financial crisis, and the firm-specific social capital established by engaging in CSR will be rewarded once society's trust has been restored.…”