The purpose of this paper is to document the relation between investment-cash flow sensitivity and a firm’s engagement in corporate social responsibility (CSR) activities in…
Abstract
Purpose
The purpose of this paper is to document the relation between investment-cash flow sensitivity and a firm’s engagement in corporate social responsibility (CSR) activities in European context. Specifically, this paper aims to empirically examine how CSR moderates the sensitivity between investment spending and firm internal funds.
Design/methodology/approach
The Euler equation technique approach is applied to test the sensitivity of investment to internally generated funds for a panel data set of 398 European companies listed in the STOXX Europe 600 during 2009-2014. Furthermore, a mediated moderation model is developed in order to examine the moderating role of CSR in the investment-cash flow sensitivity, as well as the mediating role of agency costs on the moderation effect of CSR.
Findings
The results show that CSR performance weakens the sensitivity of investment to internal funds; agency costs of free cash flow mediate the negative moderating effect of CSR on investment-cash flow sensitivity. Thus, this study demonstrates empirically that firms with socially responsible practices are better positioned to obtain financing in the capital markets through reducing market frictions as well as agency costs.
Practical implications
Firms are invited to engage more in CSR activities that reduce agency conflicts between management and shareholders.
Originality/value
The originality of this paper consists in proposing the establishment of both direct and indirect link between CSR and investment-cash flow sensitivity.
Details
Keywords
The purpose of this paper is to investigate whether and how corporate social responsibility (CSR) performance contributes to shape firms’ payout policy. In particular, it examines…
Abstract
Purpose
The purpose of this paper is to investigate whether and how corporate social responsibility (CSR) performance contributes to shape firms’ payout policy. In particular, it examines the influence of CSR performance on payout level and payout channel choice (dividend payment or share repurchases). Additionally, it examines the moderating role of CSR performance in the relationship between dividends and share repurchases.
Design/methodology/approach
Using 397 European companies listed in the STOXX Europe 600 over the period from 2009 to 2014, the authors employ regression analysis to explore the link between CSR performance and payout policy.
Findings
The first result shows that firms with high CSR performance engage more in payout policy. Second, when choosing between paying dividends and repurchasing stocks, firms with high CSR performance tend to prefer share repurchases. Finally, CSR performance plays an important role in determining the relationship between dividends and repurchases. Specifically, dividends and share repurchases seem to be more substitutable among socially responsible firms.
Practical implications
Firms that are able to develop successful CSR strategies can generate tangible benefits for their shareholders in the form of high payout levels. An increase in CSR expenditure does not lead to cut or minimize the cash flow paid out to shareholders. In addition, government and regulators have to oblige or at least encourage socially responsible firms to use executive stock option that are dividend protected, in order to reduce distortions in dividend policy.
Originality/value
This is the first attempt to investigate the association between CSR performance and share repurchase activities.