Corporate life cycle, CSR, and dividend policy: empirical evidence of Indonesian listed firms

Abstract

Purpose This paper aims to examine the association between corporate social responsibility (CSR) and corporate life cycle as well as dividend policy in Indonesia. Design/methodology/approach The paper develops two hypotheses that are tested empirically through multivariate settings. The tests are conducted using a sample of 527 Indonesian listed firms and 923 Indonesian firm-year observations between 2008 and 2015. Findings The findings support the hypothesis that CSR expenses increase when firms enter the maturity stage of their life cycle. On the triple bottom line components of CSR, firms which invest on CSR economic are in their maturity stage of their life cycle. The evidence also suggests that firms’ social donation and charitable giving increase as firms become mature. Furthermore, the strong evidence supports the hypothesis that firms’ CSR expenses positively affect dividend policy. This finding is robust to the alternative measurement of dividend payout, additional firms’ characteristics and instrumental variable to address endogeneity. Practical implications For investors in Indonesian listed firms, it is more profitable to invest in socially responsible firms than socially irresponsible firms. For firms, the results imply that spending in CSR does not reduce performance, thus becoming attractive for investors. Originality/value To the best of the authors’ knowledge, there is thin literature investigating the relation between corporate life cycle, CSR, and dividend policy in emerging markets while it is important as it could encourage companies to integrate CSR into their business strategy and transparently disclose their CSR activities. Further, as previous research on these topics mainly conducted using the US data (Rakotomavo, 2012; Benlemlih, 2014; Hasan and Habib, 2017), which most of CSR disclosures are voluntary, this paper contributes to the existing literature by examining these topics in a country where CSR is mandatory by the law.