Does CSR Reduce the Role of Dividends in Managing the Agency Problem? Evidence from a Quasi-Natural Experiment in India

We examine the intermediating role of corporate social responsibility (CSR) expenditures on dividend policy in managing the agency problem. Using the mandatory CSR expenditure requirements initiated by the Companies Act 2013 in India, we find that CSR spending reduces dividend payouts, and this reduction is more pronounced among firms facing greater agency problems. In addition, we find that CSR spending is related to increases in firm value, particularly for firms with agency problems. These findings suggest that, contrary to common wisdom, CSR is not a reflection of the agency problem. Rather, CSR can be used as a tool to resolve the agency problem