Corporate social responsibility and dividend payments in the Malaysian capital market: the interacting effect of family-controlled companies

ABSTRACT

This study investigates the influence of corporate social responsibility (CSR) on dividend payments using a sample of 263 Malaysian companies that participated in the Capital Market Development Fund–Bursa Research Scheme over the period 2008–2013. The study applies the pooled ordinary least squares, quantile, Tobit, Heckman’s self-selection model and propensity score matching regression techniques. The results from these techniques show that CSR is significantly and positively associated with dividend payments, meaning that the higher the CSR, the greater the amount of dividends paid to shareholders. However, when the interacting effect of family control is considered on the association between CSR and dividend payments, family control has a significantly negative influence on the relationship, indicating that family companies engage in less CSR, thereby negatively affecting dividend payments. Overall, the findings support the view that serving the interest of stakeholders paves the ways for satisfying shareholders’ claims, and reveals the reality of family companies’ behaviour to shareholders and stakeholders. Thus, this study adds to the literature on the dividend conundrum and the role CSR plays in shareholders’ prosperity’ it is the first attempt to establish the direct effect of CSR on dividend payments in the Malaysian capital market and study the interacting effect of family control.

KEYWORDS:

• CSR
• dividend payments
• family controlled companies
• Malaysia

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 According to the Credit Suisse Research Institute (CSRI) report on family-owned companies globally, Malaysia is ranked in the 7th position in terms of number of family companies (Liu et al. 2017).

2 The type I agency problem of free cash flow arises because of conflict of interest between shareholders (owners of the company) and management (managers). In contrast, the Type II problem occurs between the majority and minority shareholders of a company, which relates to agency cost of expropriation (Jensen and Meckling 1976; Shleifer and Vishny 1989).

3 The BRS scheme was launched in 2005, with the aim of generating research coverage for Malaysian PLCs and providing investors with more information useful in making investment decisions (Qasem, Aripin, and Wan-Hussin 2015).

4 Appendix 9C, Part A, paragraph 9.25 and 9.41, item 29.

5 On 22 December 2014, Bursa Malaysia and the Financial Times Stock Exchange (FTSE) introduced an ESG index for the Malaysian market. This index is one of the first in Asia to be part of the worldwide benchmarks of the FTSE4Good Index Series. Its aim is to support investors in making ESG investments in Malaysian companies and enhance the profile of companies with leading ESG practices. As at 30 June 2019, there were 71 companies in the Malaysia ESG Index.

Additional information

Funding

The author(s) reported there is no funding associated with the work featured in this article.