Corporate investment in social responsibility versus dividends?

Abstract

Purpose

The paper aims to examine whether corporate investment in social responsibility takes away from expected dividends.

Design/methodology/approach

The article builds two hypotheses that are tested empirically through the analysis of 17,670 US firm‐year observations covering the period 1991‐2007. The tests are conducted in both univariate and multivariate settings.

Findings

The evidence supports the hypothesis that mature firms tend to invest more in corporate social responsibility (CSR). Specifically, firms investing highly in CSR tend to be larger, more profitable, and with greater earned (rather than contributed) equity. The evidence also supports the hypothesis that CSR investment does not subtract from dividends. Instead, CSR effort and dividend tend to increase together. Thus, CSR investment tends to be effected by companies who can afford it, and it does not lower value by lowering investors' expected payout.

Practical implications

These results imply that spending resources on CSR does not lower the cash flows paid out to investors. When combined with the finding that CSR lowers the cost of equity, they also mean that CSR increases the value of a company's stock.

Originality/value

This is the first study that explicitly links CSR to the dividend flow.

Citation

Rakotomavo, M.T.J. (2012), "Corporate investment in social responsibility versus dividends?", Social Responsibility Journal, Vol. 8 No. 2, pp. 199-207. https://doi.org/10.1108/17471111211234833