Understanding the impact of corporate social responsibility on a firm’s stock price following a dividend cut announcement

• Main Authors: Ho, Sherman, Chua, Chia Jun, Yang, Jonathan
• Other Authors: Chanika Charoenwong
• Format: Final Year Project
• Language: English
• Published: 2013
• Subjects: DRNTU::Business
• Online Access: http://hdl.handle.net/10356/51379
• Institution: Nanyang Technological University

Corporate Social Responsibility (CSR) has recently been the subject of several studies and in today’s world, CSR is an essential component in any large organisation. This study examines the effect of firms’ CSR activities on the returns of their stock following a dividend cut announcement. The analysis is based on a 5-year dataset of companies listed on the KLD index who have announced a dividend cut over 5 years (2007-2011). We included 4 control variables: (1) beta, (2) firm size, (3) book to market value ratio, and (4) leverage. We found that a firm’s CSR activities do not have statistically significant influence on how the stock market reacts after a dividend cut announcement. Even after modifying the study to reduce the effect of external variables such as random market fluctuations and the timing of the dividend cut announcement, the results still show that CSR is irrelevant in the effect of a dividend cut announcement. Our study found that there is no evidence that suggests that firms engaging in CSR will see an improvement in financial performance, or in this case, as insurance against negative events.