CSR Disclosure, Dividends and Firm Value – Relations and Mediating Effects

54 Pages Posted: 16 Nov 2020

See all articles by Charl de Villiers

Charl de Villiers

University of Auckland Business School

Diandian Ma

University of Auckland Business School

Ana Cristina Marques

Norwich Business School - University of East Anglia

Date Written: August 2020

Abstract

Managers use corporate social responsibility (CSR) disclosures to signal future financial prospects. Prior literature documents a positive relation between CSR disclosure and financial consequences, such as higher firm value. Dividends play a similar signaling role with similar financial consequences. This paper provides evidence regarding the interplay among CSR disclosure, dividends and firm value, relying on a large multi-country sample. First, we find that firms with higher levels of unexpected CSR disclosure are likely to pay higher dividends, and that this result is attributable to firms where CSR disclosure is aligned with CSR performance (both CSR disclosure and performance are high or both are low). Second, we assess whether the positive relation between CSR disclosures and firms’ share price persists after introducing dividends as a control. We find that unexpected CSR disclosure are associated with higher share prices, but not after controlling for dividends, i.e. dividends fully mediate unexpected CSR disclosure. Sub-sample analyses show that full mediation occurs when firms’ CSR disclosures are aligned with CSR performance, while in the unaligned sample unexpected CSR disclosure is still informative. Our findings are consistent with the view that managers use both CSR disclosure and dividends to signal future prospects, which are therefore both positively associated with share prices, but where CSR disclosure and performance are aligned, CSR disclosure loses its information value to market participants. The mediation effect we document implies that prior firm value study results should be interpreted with caution, and future studies should control for dividends.

Keywords: Corporate Social Responsibility; CSR disclosure; Global Reporting Initiative; Valuation

JEL Classification: G35, M14

Suggested Citation

de Villiers, Charl and Ma, Diandian and Marques, Ana Cristina, CSR Disclosure, Dividends and Firm Value – Relations and Mediating Effects (August 2020). Available at SSRN: https://ssrn.com/abstract=3700880 or http://dx.doi.org/10.2139/ssrn.3700880

Charl De Villiers

University of Auckland Business School ( email )

12 Grafton Rd
Private Bag 92019
Auckland, 1010
New Zealand

Diandian Ma

University of Auckland Business School ( email )

12 Grafton Rd
Private Bag 92019
Auckland, 1010
New Zealand

Ana Cristina Marques (Contact Author)

Norwich Business School - University of East Anglia ( email )

Norwich
NR4 7TJ
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
267
Abstract Views
848
Rank
173,690
PlumX Metrics