CSR Performance, Dividend Payout and Governance Mechanisms

Abstract

In this article, we study whether Corporate Social Responsibility (CSR) performance
has an influence on dividend payout ratios. We provide evidence that high CSR firms
pay more dividends than other firms. We also find that the positive relationship
between CSR performance and dividend payout is observed only for firms in high
investor protection countries, for firms with high insider ownership, and with high
analyst coverage. These findings provide support for the agency view of CSR which
posits 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, in
accordance with the “outcome model” of dividend policies, we highlight that the link
between CSR performance and dividend payout is significant only when internal or
external governance mechanisms are strong. This indicates that dividend policy and
governance mechanisms are complementary and not substitute mechanisms to limit
potential expropriation linked to CSR policies.