Effect of Corporate Social Responsibility on dividend payout policy; Evidence

from Pakistan

1. Shoaib Ilyas , ..Registration No. 15-Arid-1795

2. Muhammad Sohaib , .Registration No. 15-Arid-1756
3. Aitizaz Ahsan , .Registration No. 15-Arid-1674
4. Abdul Wahab , .Registration No. 15-Arid-1670
5. Gulalal , .Registration No. 15-Arid-1692

. UNIVERSITY INSTITUTE OF MANAGEMENT SCIENCES

PIR MEHR ALI SHAH ARID AGRICULTURE UNIVERSITY
RAWALPINDI, PAKISTAN
 BBA Final Project

ATTESTATION OF AUTHORSHIP

This Project report is composed by:

1. Shoaib Ilyas , .Registration No. 15-Arid-1795

2. Muhammad Sohaib , .Registration No. 15-Arid-1756
3. Aitizaz Ahsan , .Registration No. 15-Arid-1674
4. Abdul Wahab , .Registration No. 15-Arid-1670
5. Gulalal , .Registration No. 15-Arid-1692

We...hereby. solemnly declare that our Project Report titled “Effect of Corporate Social
Responsibility on dividend policy; Evidence from Pakistan” is a work based on our endeavors
and to the best of our understanding and belief, it includes no such material which has been
previously published or written by another person. This report is not submitted before and shall
not be submitted in future to obtain a degree from same or another University or Institution. If it
is found to be copied/plagiarized at later stage of any student registered in the same or any other
university, we shall be liable to face legal action before Unfair Mean committee (UMC), as per
AAUR rules and regulations, we understand that if we are found guilty in some way, our degree
would be cancelled.

Authors’ Signatures,
1. Shoaib Ilyas, Signature:_________
2. Muhammad Sohaib, Signature:_________
3. Aitizaz Ahsan, Signature:_________
4. Abdul Wahab, Signature:_________

5 Gulalal , Signature:_________
 CERTIFICATE

This research work is entitled “Effect of Corporate Social Responsibility on dividend

policy. Evidence from Pakistan is conducted by three members of group

1. Shoaib Ilyas , .Registration No. 15-Arid-1795

2. Muhammad Sohaib , .Registration No. 15-Arid-1756
3. Aitizaz Ahsan , .Registration No. 15-Arid-1674
4. Abdul Wahab , .Registration No. 15-Arid-1670
5. Gulalal , .Registration No. 15-Arid-1692

and have been completed under my guidance and supervision and I am satisfied with the quality
of these students ‘research work.

_______________________
Signature

Supervisor Name: Mr. Ammar Asghar

Date: _________________________
 Dedication

This study is wholeheartedly dedicated to our beloved parents, who have been our source of

inspiration and gave us strength when we thought of giving up, who continually provide their

moral, spiritual, emotional, and financial support. This project is epically dedicated to our
supervisor Mr. Ammar Asghar for his patient and valuable input throughout the project and
without whose unwavering support we could not have done this.

. To our brothers, sisters, relatives, mentor, friends, and classmates who have shared their words
of advice and encouragement to complete this study.

Finally, we dedicate this research to the Almighty God, thank you for the guidance, strength,

power of mind, protection and skills and for giving us a healthy lif
 ACKNOWLEDGEMENT

Thanks to Allah Almighty, the most Merciful, the only Creator of the universe and the
Source of all knowledge and wisdom, who blessed us with good health, thoughts, talented teachers
and helping friends.
I feel highly privileged to express my gratitude to my sincere and honorable supervisor
Mr. Ammar Asghar Lecturer, University institute of Management Sciences PMAS Arid
Agriculture University Rawalpindi, for his keen interest, unidirectional guidance, constructive
criticism and sympathetic attitude throughout the study. Without his enthusiastic scholarly
guidance, this manuscript would not have seen the light of day at best in its present form.
 Contents
Chapter One
Introduction
1.1. Background ....................................................................................................................................... 8
1.1.2Corporate social responsibility (CSR) ................................................................................................ 9
1.1.3.CSR has four approaches ................................................................................................................. 9
1.2 Theories of dividend policy ................................................................................................................... 10
1.3 Research gap ................................................................................................................................... 11
1.4. Problem statement ......................................................................................................................... 13
1.5. Research Question ............................................................................................................................... 13
1.6. Research Objective .............................................................................................................................. 13
2.1. Hypothesis of the study ....................................................................................................................... 16
3.1. Econometric model .............................................................................................................................. 17
3.2. Dependent Variable ............................................................................................................................. 17
3.3. Independent Variables ......................................................................................................................... 18
3.4.DATA AND SAMPLE SELECTION ............................................................................................................ 20
3.5. Variable description and calculation.................................................................................................... 20
4.1. Multicollineartiy ................................................................................................................................... 24
4.2. Descriptive Statistics ............................................................................................................................ 25
5.1. Limitation ............................................................................................................................................. 26
5.2. Recommendation................................................................................................................................. 26
References .................................................................................................................................................. 27
 Chapter One
1.Introduction

In a growing world of technology, today’s developed and under developing economies have
taken great concern on evaluating influence of corporate social responsibility on variance
circumstantial factors. Many businesses have incorporated CSR as a part of their mundane
practice. It has certain intrinsic and extrinsic attributes from which companies benefit from and
can help them grow in competitive environment.
There is a brief history linked to emergence of corporate social responsibility as it influences
organizations behavior and way of doing things. Every business view corporate social
responsibility according to their own perspective weather in terms of financial or any intrinsic
value.
In 1950s business were more focused on responsibilities to society and doing good things for
society. Later in 1960s people and ideas were contributory to formulating the social changes that
took place. In 1970s CSR issues were only dealt with integration of conventional management
functions. In 1980s firms tend to gravitate more towards their stakeholders. In 1990s practices of
CSR became globally accepted and finally, in 2000s CSR was acknowledged as a crucial
strategic issue.
In Pakistan strong urge to incorporate CSR in business environment was felt after observing
recent corporate incidents which resulted in heartbreaking carnage, attracted massive corporate
attention. e.g. fire incident in garment factory of baldia town Karachi and shoe industry in
Lahore.
The effect of CSR is versatile although, in this research we try to observe impact of CSR on
dividend payout policy. Since, we calculate corporate social responsibility on the basis quantified
data extracted from more than 17 companies from Pakistan’s corporate sector and that makes our
research unique in some way.

1.1.Background

Researches of relationship between CSR and dividend policy decisions are scarce in nature. We
have found that Rakotomavo (2012) has been the only paper in literature. It investigates a
relationship between investment in CSR and dividends. His study uses restrictive measure of
CSR because it uses CSR strengths and excluding weakness which could also determine CSR.
Furthermore, Cheung et al. (2018) included weakness as a part of CSR measure. However, our
research differs from Rakotomavo (2012) and Cheung et al. (2018) in following way. We have
used CSR dimensions that is not dependent on any strength or weakness rather we have assigned
a single point to each CSR dimension and calculated our results on that basis which is also
shown in our methodology.

In theory, we have studied that CSR can influence dividend payout policy in two different ways.
One is related to earnings and other is related to cost of equity capital. Earning view explains that
CSR may affect earnings by considering it as positive NPV projects. Resultantly, it affects
dividend policy. It has also been noted in literature that earning are key determinant of dividend
policy. (Gul, 1999; Michaely and Roberts, 2012). Second view about cost of equity capital
explains that CSR lowers the cost of capital, which incite firm to retain cash or invest instead of
releasing dividends. A study predicts that whenever cost of capital is lower, firm’s probability to
release cash is anticipated to be higher. (Kim et al. 1998)

In addition, we have formulated our hypothesis based on the view weather CSR has no effect on
dividend payouts or it has an affect on dividend payouts in terms of positive/negative relation.

1.1.2Corporate social responsibility (CSR)

CSR has two meanings; first it is a theory of corporation that throw a light on two things. First
that the company must make. money and second responsibility to collaborate ethically with the
surrounding community. Second meaning of CSR is that the company must be responsible to
gain profit while playing a vital role in community welfare.

1.1.3.CSR has four approaches

The economic responsibility basically mean that the company must make profit. in such a
competitive world the companies that do not make profit cannot survive in such a completive
enjoyment. But in a case of nonprofit organization they make money through their own
operations and donations and put it back to their cash cycle.in the end the companies must make
profit because if they don’t then there is absence of business and absence of business ethics.

Legal responsibility means that the companies must follow the rules and regulations.
Responsible organization accept the rules and regulation as their primary duty. Laws are not
boundaries that companies’ crossover if the penalty is low instead companies follow the rules as
for a social good.

The ethical responsibility to do what is right even when it is not the requirement of the law .

This is the theory which depend upon the corporate culture of the organization in which the
company picture itself as a citizen of the society. Sometimes doing right cannot be more
profitable but from the view that values everyone welfare as being valuable the measures could
be recommendable.

The philanthropic responsibility is that the companies must contribute in the society projects
even if they are not the part of their business or they are not giving any type of profit to
company. For example, a law firm give authorization to their offices every year to local school
children to visit their offices to discover what lawyer do all the day.

1.2 Theories of dividend policy

Over time many theories of dividend policy have emerge some of the main theories are discussed
as follows

The residual theory of dividend policy says that firm will only give dividend to shareholder after
the optimum level of capital expenditure is incurred. E.g. the profitable investment opportunities
have been financed. Hence primary focus of the residual dividend policy is that firm focus on
investment rather than dividend.

Dividend irrelevance, (Millers and Modigliani,1961) says that divined policy will not affect the
cost of capital and price of company.

The Bird in The Hand theory (John Linter and Myron Gordon, 1963) says that the stock
holder prefers current dividend rather than future dividend due to their low level of risk. The
logic of this theory is what is available at present is preferable as compare to what is may be
available in the future. They prefer to have confirmed dividend now as compared to promised
dividend in future despite that the promised dividend is larger.
Agency cost Theory (Jenson)

Describe that firm’s payout dividend it reduces the agency cost. dividend payout accumulates
the firm in the capital market where monitoring of the manager is available at lower cost. If the
companies have free cash flows, it is better to share with stockholder as dividend payout in order
to decrease the possibility of these funds being wasted on less profitable projects. This modern
view of dividend policy represents the important role of policy in helping to settle down the
agency problem and thus increases shareholder value.

1.3 Research gap

In Pakistan many studies have conducted on CSR and its effects on different financial and
nonfinancial aspects. Some studies have been done on how CSR effect the firm’s financial
position and they show different results.

(Nadeem, Naveed, Nauman& Nadeem 2012) have taken 156 companies listed in Karachi stock
exchange from textile sector, chemical sector, cement sector and the tobacco sector to check the
relation between CSR and firm financial performance. The result of the study shows that CSR
may have no effect on the financial performance of the firms. Their results also predcits that
CSR has negative influence on the market value of the share but no relation to D/E behavior of
the firm. (Samra, Sahid and Farzana,2015) conduct a study on CSR and its possible impact on
firm profitability. They collect the data of 10 oil and gas sector corporations listed in Karachi
stock exchange, the result of the study concludes that a positive correlation between CSR and net
profit and net profit margin on the other hand a negative correlation between CSR and total asset,
but an insignificant effect of CSR practices on profitability of firm.

Some of the studies also conducted on CSR and how it effects the nonfinancial aspects of the
firms. (Majid, Yasir and Arshad, 2013). study shows that how CSR will affect the reputation of
the corporation. And that shows the positive relation between the CSR and corporate reputation.
CSR is much attractive in the developed world, but the hidden benefits of CSR are less
highlighted in the developing markets like Pakistan. Results showed that socially responsible
activities of a firm improve the brand image of the firms. (Raza, Maria, Nousheen, Mohsin &
Samar, 2013). SME approach to CSR in Pakistan is unstructured however they are performing
CSR activities in an informal manner with mix method in most case. However, few. SMEs are
performing CSR activities in an formal manner. (Raza and Majid,2015)

In Pakistan many studies have been conducted on CSR and its impact on different financial and
non-financial aspect of the firm. But we did not find any study related to CSR and its impact on
dividend policy. That’s why we conducted a study on CSR and its impact on dividend policy.

Table: 1

Sr no Author Variable Objective

1 firm (Nadeem, Corporate Social To find the effect

Naveed, Nauman Responsibility, Financial of CSR on
and Nadeem Performance, Market financial
2012). Performance, Market performance.
Value.
2 (Samra , Sahid Corporate social To find the
and Farzana,2015) responsibility, firm relationship
profitability between the CSR
and firms
profitability
3 . (Majid, Yasir and : Corporate Social To FIND how
Arshad, 2013) Responsibility (CSR), CSR can effect the
Corporate Reputation, corporate
Image, Stakeholders, reputation in
Cements Industry of cement industry of
Pakistan Pakistan.
4 . (Raza, Maria, Corporate social How csr can help
Nousheen, Mohsin responsibility, company to gain
and Samar, 2013) competitive advantage, the competitive
brand image advantage.
5 (Raza and CSR SMEs Perceptions The objective of
Majid,2015) Practices Pakistan this paper is to
 explore CSR
practices in SME
sector of pakistan

1.4.Problem statement
The problem statement of this study is to find the impact of CSR practices on the dividend
policy of the firms in Pakistan to help investors, shareholders better understand and interpret
payouts of CSR firms.

1.5. Research Question

“What is the impact of CSR on dividend payout policy”

1.6. Research Objective

“To study impact of CSR on dividend payout policy”

1.7. Significance of the study

Corporate Social Responsibility is a Fundamental part of modern business world. No

organization is expected to be ignoring it these days. A growing number of social firms are
turning their attention to investigation into topic related to CSR in Pakistan. CSR and Dividend
policy related researches has been reported in many countries. However, there is no study has
been done in Pakistan yet. Therefore, the work will be of great significance. The work will help
the companies in Pakistan and highlighted the importance of CSR activities and its impact on
dividend policy.it will make data available for company’s s financial managers, policy makers,
and all key stakeholders while making decision regarding to dividend payout. This study helps
both investors and corporate managers make an investment and financing decision.
 Chapter Two

2. Literature review

There have been few perspectives about corporate social responsibility and firm financial
performance which have also been part of argumentative conversations. Studies have concluded
that corporate social responsibility increases cost to firm, eventually which puts them in a bad
position. Second conclusion is more positive as it states that firm gets low explicit cost, but
implicit benefit is much higher in terms of employee morale and productivity.

Furthermore, study related to these perspectives has revealed that rather than investigating a
relationship between corporate social responsibility and its effect on firm’s financial
performance one should explore relationship by taking financial performance as factor affecting
corporate social responsibility. (Velde, Verneir&Corten,2005)

Another study related to CSR has evaluated influence of corporate social responsibility on
financial position by examining weather integration of CSR policies has an impact on returns as
compared to traditional process. Study results are based on the Famma and French approach.
Research concluded that high sustainability related portfolios tend to perform much better in
market than low sustainability. In addition, investors were also ready to pay premium for
companies with good management for maintain good relationship with suppliers, shareholders
and clients. (McGuire, Sundgren&Schneeweis,1988)

This study tested the performance of socially responsible stocks as compared to control sample
and they found that socially responsible stocks unexpectedly have lower returns and variance as
compared to control sample stocks. They found few reasons upon their exploration. First,
socially responsible stocks had almost no jeopardy. Secondly SR and CS had no difference in
risk adjusted returns between buy and hold strategies. Furthermore, to conclude study results it is
clearly mentioned that study was conducted based on risk return perspective using stock market
data. (Becchetti&Ciciretti,2009)

In 2008 another study explored new proof relative to impact of CSR on stock returns and this
study was specifically conducted on Europe and USA region. Researched concluded that
environmental and social activities are highly valued by financial market and it had positive
effect on stock market returns from 2003-2006. Furthermore, it was also concluded that
estimations could also go wrong if wrong economic models are specified and it will show
inaccurate findings. In the end, it was also proposed to use Famma and French model instead of
simple capital asset pricing method. (Arx&Ziegler,2008)

It was studied weather socially responsible firms behave differently in financial reporting and
tend to earnings management or not. Researcher clearly hypothesize that CSR firms spend effort
to meet ethical requirement of society are more likely to provide transparent financial
information. Upon findings, it was concluded that CSR firms are less likely to engage in earnings
management and they would not support techniques like window dressing to maintain ethical
position and decorum. (Lichtenstein, Drumwright&Braig,2004)

CSR has been a huge a spotlight for modern century researchers. This study observed the impact
or role of CSR communication on maximizing business returns. Upon exploration, it was
concluded that CSR plays a vital role in maximizing business returns. Researchers identified that
CSR had huge impact on collecting good stakeholder attitude and behavior. While researching
they also identified that stakeholder’s less awareness is the only obstacle which prevents
company from investing and maximizing profit for stakeholder. This article is only missing an
effective mechanism to ensure effectiveness in CSR communication because if it not robust then
stakeholders can go suspicious and it could create a huge backlash effect. (Du,
Bhattacharya&Sen,2010)

For our literature review, we have studied few other studies which are also somewhat related to
CSR.

In 2001 study, literature constitutes investigation of relationship between shareholder value,

stake holder management and social issues. Research proved positive impact of stakeholder
management on shareholder value and social issues shared negative impact on shareholder value.
It was also concluded that investment in stakeholder holder management had proven to have
much greater shareholder value. (Hillaman&Keim,2001)

In 2005 study, Corporate Social Responsibility had been observed through economic and
financial perspective. Literature found that CSR programs tend to be profitable items of
corporate strategy and contributes to economy through financial markets (Heal,2005)
In 2009, another study conducted research in regard to investigating effectiveness of CSR
activities on shareholder value and it led to the exploration of positive attributes of CSR which
also lead to findings of risk management through hypothesis testing. Once again, another study
revealed positive impact of CSR on maximizing value for stakeholders (Gofery,
Merrill&Hansen,2009)

2.1. Hypothesis of the study

H₀: CSR has no impact on dividend payout.

H1: CSR is related to dividend payout and it has an effect on it.

 Chapter Three

3. Methodology

3.1. Econometric model

Dividend payout = α +β(CSR) + β( beta) + β(BVe) +β(cash) +β(eta)+β(lev)+β( mtb)+β(MVe)

+β(reta)
CSR = Corporate Social Responsibility
Beta = .Systematic Risk
BVe =Book. Value of Equity
Cash = Cash to. Total Assets
Eta = Earning to Total Assets
Lev = Leverage
Mtb = Growth Opportunities
MVe = Market Value of Equity
Reta = Retain Earning to Assets

This formula describes the statistics of payout ratio and 9 in dependent variable of 17 companies
from the period of 2011 to 2015.

3.2. Dependent Variable

Dividend payout used as a dependent variable in this study which was measure as ratio of total
dividend to net income.it is an important indicator how a company doing financially and
maximized the shareholder wealth. It shows that how much a firm paid total dividend to their
shareholders relatively to firm total income
3.3. Independent Variables

CSR is used as an independent variable in this study. We used KLD matrix to measure the CSR.
CSR is derived from Environment, Social and Corporate governance of corporate social
responsibility respectively the E dimension represent the Environment the S dimension represent
the Community relation, Human rights and Product safety and the G dimension cover the
Corporate governess, Diversity and Employ relation.

According to (Cheung, Hu&Schwiebert,2018) CSR activities can increase the income of firms
that push the firm in a good position and they pay more dividend on the other hand CSR
activities decrease the cost of capital which enable the firm to hold cash rather then pay dividend.

Earning to total asset used as independent variable which was measured as ratio of net income
to total asset.it is comprehensive indicator of firm indicate that how firm efficiently used its
assets to generate earning

Leverage used as independent variable in this study calculated as the ratio of long-term debt to
total assets. Leverage are used to determine the relative level of debt that a business has incurred.
Leverage ratios compare the debt obligation either the total asset or the stock holder equity of the
business. Higher the ratio shows that business has incurred a high level of debt then it can be
expected to service with ongoing cash flows. Companies with lower leverage ratio will be more
stable as financially and that’s why firms pay more dividend to stockholders (Aivazian,2003)

Growth opportunities used as independent variable. Growth opportunities measured as market

to book ratio, the relationship between growth opportunities and financing policy is important
issue in corporate finance. Firm with higher market to book ratio face lower debt financing cost
and borrow more. Firm with higher market to book ratio used more debt and firm with lower
market to book ratio retire more debt (Chen&Zhao,2006). Firm with higher investment
opportunities required large amount of cash in hand so these firm pay less dividend.
(Fama&French,2011)

Market value of equity is another independent variable of the study calculated by multiplying
the current prices of stocks by total number of share outstanding. It is the synonym of market
capitalization market value of equity is used to analyze the company size and its help the investor
to diversify their investment according to company size and different level of risk. (Emeni,
Francis, Kehind, Ogbulu, Oneymachi&Maxwell,2015) study shows that there is no significant
relation between the stock dividend policy and market values of companies in financial services
sector in Nigeria stock exchange

Book value of equity used as independent variable which was measured as the ratio of equity to
total outstanding share. When a firm pays dividend to its stockholders the value of firm equity is
decreased by the total value of all dividend its paid (Cheung, Hu&Schwiebert,2018)

Retained earnings to total asset is independent variable in this study which is calculated by
dividing the retained earning with total asset. Retained earnings indicate that how much firm
retaining his profit and using them to finance their asset instead of paying dividend. when a firm
make profit either it can pay as a dividend to shareholder from those profit or it can keep retain
within business for new investment project. According to (Munir, Kharal&Abidi,2017) when
firm retain more for financing to their asset it cannot pay more dividend.

Systematic risk is another independent variable in our study. We measured the beta through
shares prices of firm on daily basis and calculate the HPY of KSE 100 index. Systematic risk is
completely unpredictable and impossible to avoid but it can be mitigating through diversification
firms with stable and secure earning are paying more dividend to their stock holders
(Chang&Rahee,1990)

Table3

Independent Variables Predicted signs References

CSR +ive /-ive (Cheung,
Hu&Schwiebert,2018)
Leverage -ive (Aivazian,2003)
Growth opportunities -ive (Fama&French,2011)
Market value of equity -ive (Emeni, Francis, Kehind,
Ogbulu,
Oneymachi&Maxwell,2015)
Retained earnings to total +ive/-ive (Munir, Kharal&Abidi,2017)
assets
 Systematic risk -ive (Chang&Rahee,1990)
Book value of equity -ive (Cheung,
Hu&Schwiebert,2018)

3.4.DATA AND SAMPLE SELECTION

In this research study we took the data of 17 companies from different sector listed in Karachi
stock exchange. the observation is taken from entire period of 2011 to 2015 from publish
resources of state bank of Pakistan. We took the data of these 17 companies because they had
also participated in the corporate social responsibility excellence award 2012 organized by
national forum for environment and health (NFEH). The secondary data required to measure the
payout ratio and other supporting variable is taken from the balance sheet analysis of state bank
of Pakistan. We use kinder, lyndenberg and domini matrix (KLD) to measure the CSR of these
17 companies. This CSR score is derived from the Environment, Social and Corporate
Governance framework of corporate social responsibility. The E dimension represent the
envoirment, the S dimension represent the community relation, human rights and product safety
and the G dimension cover the corporate governance, diversity and employee relation.

3.5. Variable description and calculation

 The dividend payout ratio is taken as the dependent variable of the study; it means that
the amount of earning that is allocated to the shareholder in the form of dividend.
Dividend Payout Ratio = Dividend per Share
Earnings Per Share
 Corporate social responsibility is the independent variable in this study and it shows the
commitment of a business in the development of the society, improve quality of life of
work force and their families and as well as society and community at large (Holme &
watts, 2000).

 Systematic risk is the undiversified able risk that affect the overall market not just the
particular industry.
 Book value of equity is the equity that is available to the common share holder divided
by the total number of outstanding shares.
Book Value of Equity = Total Equity – Preferred Equity
Total Share Outstanding
 The cash to total asset ratio compare the amount of highly liquid assets to the current
liability of the company. This ratio measures the ability of the firm to measure the
company ability to pay short term debt.

Cash to Total Assets = Cash Equivalent

Total Assets

 Earning to Total Assets is the ratio that measure the company income relative to its
assets it also tells how efficiently company is utilizing its assets.

Earning to Total Assets = Earnings

Total Assets
 According to the argument of Aivazian et al. (2003), companies are considered more
stable and will pay more dividend if they have low leverage.

Leverage = Total Debt

Total Assets
 Fama and French (2011) companies will pay less dividend if they spend most of their
money in the new investment opportunities because they spend lot of money in these
investments.

Growth Opportunity = Total Assets – Book Value Of Equity + Market Value Of Equity
Total Assets
 Market value of equity is the total value of the firm predicted by the investors willing to
invest in that particular firm.
Market value of equity = number of total shares * market price of share

 Retained earning to total assets is how much earning is generated by utilizing the
existing assets of firms
Retained Earnings To Total Assets = Retained Earning
Total Assets
 Chapter 4

4. Result and discussion

Table 4

Dependent Variable: PAYOUT_RATIO

Method: Panel Least Squares
Sample: 2011 2015
Periods included: 5
Cross-sections included: 19
Total panel (unbalanced) observations: 82

Variable Coefficient Std. Error t-Statistic Prob.

C 0.549822 0.931708 0.590123 0.5576

CASH_TO_TOTAL_ASSET 0.064594 1.512120 0.042717 0.9661
EARNING_TO_ASSET 0.018413 0.476101 0.038675 0.9693
LEVERAGE -2.636131 1.467324 -1.796557 0.0780
GROWTH_OPPORTUNITY 0.015097 0.092202 0.163741 0.8705
MARKET_VALUE_OF_EQUITY 1.52E-09 7.39E-10 2.055189 0.0447
BOOK_VALUE_OF_EQUITY -1.30E-08 2.44E-08 -0.533412 0.5959
RETAINED_EARNING_TO_ASS
E -0.782589 0.642978 -1.217133 0.2288
SYSTEMATIC_RISK -0.013464 0.099303 -0.135590 0.8926
CSR 0.042017 0.177435 0.236805 0.8137

Regression analysis runs to examine to how dividend payout will be affected when the
independent variables (CSR, Cash to total asset, earning to total assets, Leverage, Growth
opportunities, Market value of equity, Book value of equity, retained earnings to asset,
Systematic Risk) adjusted

Table 4 Effect of CSR on dividend payout

Table 4 illustrate the result of the effect of CSR on dividend policy. As result show that the
p value of CSR is 0.81% which is greater than to 5% its means that CSR has an insignificant
relation with dividend policy. This result oppose the result found by (Cheung,
Hu&Schwiebert,2018) who argue that CSR activities can increase the income of firms that push
the firm in a good position and they pay more dividend on the other hand they stated CSR
activities decrease the cost of equity which enable the firm to hold cash rather than pay dividend.
In addition, a negative association found between leverage and dividend payout indicating that
firm with high leverage ratio pay less dividend. This result is consistent with the result found by
(Aivazian,2003) who argued that firms with high leverage will be less stable as financially tend
to pay less dividend. The result of growth opportunities has no significant association with
dividend payout as Table 4 show that the P value of growth opportunities is 0.87% which is
greater than 0.5%, this result is oppose the result found by Fama&French (2011) who argued that
Firm with higher investment opportunities required large amount of cash in hand so these firm
pay less dividend. The study found a negative association among book value of equity and
dividend payout this result consistent with the result of (Cheung, Hu&Schwiebert,2018) who
argued that When a firm pays dividend to its stockholders the value of firm equity is decreased
by the total value of all dividend its paid. This result also shows that an insignificant relation
between retained earnings to total asset and dividend payout which is opposed the result of
(Munir, Kharal&Abidi,2017) who argued that when firm retain more for financing to their asset
it cannot pay more dividend. The study also reported positive and significant relation of market
value of equity. The result of the study opposes the result found by (Emeni, Francis, Kehind,
Ogbulu, Oneymachi&Maxwell,2015) who argued that there is no significant relation between the
stock dividend policy and market values of companies. The result of systematic risk shows a
negative relation with dividend policy. These finding are consistent with the result found by
(Chang&Rahee,1990) who indicate that firms with high systematic risk will be less stable as
financially and tend to pay less dividend.
 4.1. Multicollineartiy
Table 4.1.

Payout cash to earning leverage growth market book retained systematic csr
ratio total to asset opportunity value of value of earning risk
asset equity equity to asset
Payout ratio 1
cash to total -0.00317 1
asset
earning to 0.073838 0.083176 1
asset
leverage -0.12049 -0.26022 -0.37733 1
growth 0.120932 0.468892 0.107687 -0.27111 1
opportunity
market 0.157224 -0.10583 0.148583 -0.22013 0.233425 1
value of
equity
book value -0.2165 -0.20794 -0.12278 0.0979 -0.16862 0.317217 1
of equity
retained 0.2324 0.310804 0.379536 -0.67088 0.505465 0.26346 -0.38228 1
earning to
asset
systematic 0.016206 0.000948 -0.46761 0.143588 0.002326 0.096202 0.173923 -0.15735 1
risk
Csr 0.172388 0.024024 0.09376 0.108268 0.013685 0.14365 0.274486 0.033136 0.132608 1

Table 4.1. shows that independent variables do not have correlation more than 0.5. Since, our
base value is 0.7 so that means there is no need to exclude any variable as all are contributing to
CSR calculation.
4.2. Descriptive Statistics
Table 4.2

INDEPENDENT MAX MIN MEAN STANDERD

VARIABLE DEVIATION
payout ratio 2.43 0 0.3786 0.5346
cash to total assets 0.5 0.00015 0.0548 0.1014
earning to total assets 1.277 -0.21 0.0933 0.1758
leverage 0.4053 0 0.0805 0.1071
growth opportunity 9.0159 0.402 2.0966 1.5641
market value of equity 1188604573 11067.5 108634916.8 210296793.7
book value of equity 96261551 3238 12727136.13 23170690.08
retained earning to total 0.7903 -1.19 0.2512 0.4052
assets
systematic risk 2.363 -2.5752 0.6875 0.7227
CSR 7.5 1.5 5.0243 1.1544
 Chapter Five

5. Conclusion

In order to find the impact of CSR activities on the dividend policy data of 17 companies of
different sector which were listed on KSE was collected. The data were extracted both from SBP
financial statement analysis of companies and annual reports of these companies. To find
relationship of CSR with dividend policy regression test was conducted. The result shows an
insignificant relation between CSR and corporate dividend policy. The result also shows that
leverage and growth opportunities negatively related with dividend payout

5.1. Limitation

Because of the shortage of time and lack of resources a convenient sampling technique was used
and extract the most of the data related to CSR from the annual reports of the companies.

Sample is relatively small due to the lack of resources and the data of the most companies is not
easily available that is why we took the data of only 17 companies listed in KSE index. We
didn’t take sample from a specific sector because in a specific sector only few sectors are
working on the CSR and this would shrink our sample size.

5.2. Recommendation

In future the researchers can take the sample either from the manufacturing or services sector
instead of particular industry. In this way they would get a healthy sample size. Not much work
has been done on how Csr can affect the financial performance, profitability and other financial
aspects of the company.
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