CSR Performance, Dividend Payout and Governance Mechanisms

Abstract

In this article, we study whether Corporate Social Responsibility (CSR) performancehas an influence on dividend payout ratios. We provide evidence that high CSR firmspay more dividends than other firms. We also find that the positive relationshipbetween CSR performance and dividend payout is observed only for firms in highinvestor protection countries, for firms with high insider ownership, and with highanalyst coverage. These findings provide support for the agency view of CSR whichposits that CSR activities may be related to the managerial expropriation of shareholders. Dividend policy seems to be a tool used to mitigate this problem. Hence, inaccordance with the “outcome model” of dividend policies, we highlight that the linkbetween CSR performance and dividend payout is significant only when internal orexternal governance mechanisms are strong. This indicates that dividend policy andgovernance mechanisms are complementary and not substitute mechanisms to limitpotential expropriation linked to CSR policies.