Corporate Social Responsibility and Dividend Policy in India

Purpose – The study investigates the relationship between corporate social responsibility (CSR) and dividend policy in the context of Indian firms, as well as how regulatory interventions in the form of mandated CSR can moderate this relationship. Design/methodology/approach – A sample of the largest 500 non-financial companies listed on the National Stock Exchange from 2008 to 2019 is used in the study. We employ the system generalised method of moments (GMM) since this estimation technique yields accurate and consistent findings in a dynamic panel data setting. Findings – We find that CSR is positively associated with dividend payments. Increased earnings and lower financial constraints are the likely factors causing this relationship. Additional analysis suggests that the positive relationship is stronger for mature firms and firms with higher information asymmetry. Financial reporting quality works in tandem with CSR to boost dividends. Regulatory interventions in the form of mandated CSR weaken the relationship between CSR and dividends. Finally, the speed of adjustment of dividends is relatively faster for socially responsible firms. The findings of the study are consistent when subjected to a series of robustness assessments.Practical implications – The positive association between CSR and dividends suggests that the interest of shareholders and other non-financial stakeholders can be reconciled. Additionally, businesses should attempt to strategically implement their CSR plans in accordance with the requirements of Section 135 of the Companies Act, 2013 to avoid any unfavourable moderating effects of the legislation. The results also show that CSR disclosures complement rather than serve as a substitute for financial disclosures. Originality/value – The study is the first to evaluate the relationship between CSR and dividends in the context of India, which is a pioneer in passing legislation that mandates CSR for firms surpassing the specified threshold. The authors also identify financial constraints as a channel through which CSR affects dividends