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Corporate Social Responsibility Activities, Dividend Policy, and Firm Value

  • Journal of Insurance and Finance
  • 2014, 25(4), pp.99-141
  • Publisher : Korea Insurance Research Institute
  • Research Area : Social Science > Business Management

LEE JI HYE 1 Byun, Hee Sub ORD ID 2

1서울시립대학교 경영대학
2예금보험공사

Accredited

ABSTRACT

This paper investigates the effect of corporate social responsibility (CSR) activities and dividend policy on the firm value. Empirically, we confirm that the positive effect of CSR on the firm value is strongly observed in firms with high dividend payout. This implies that shareholders (or investors) grant relatively high value to the CSR activities only when they are guaranteed by the proper monetary compensation such as dividends. We can interpret this result that the dividend is considered as a bonding mechanism for CSR, which can be abused by managers and cause the agency problems. This result is robust after controlling the endogeneity problems and employing the environmental management activities as alternative measures for CSR. Additionally, our results is strongly observed in firms with weak corporate governance structure, as the bonding role of dividend payout would be prominent in those firms. Our results have an important strategical implications on how the firms establish their financial policies such as CSR and dividends to maximize the firm value.

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