Do Managers Pay CSR for Private Motivation? A Dividend Tax Cut Case in Korea

Abstract

A CEO who has an opportunity to pursue his interest may sacrifice investors with inefficient investments such as overinvestment in corporate social responsibility (CSR). As prior researchers have suggested a possibility to detect the perk portion of CSR investment using the dividend tax cut event, we tested whether managers decreased CSR spending while accelerating dividend payouts during the Korean dividend tax cut of 2015. Consistent with the prior studies on the dividend tax cut, we discovered a pattern of incremental dividend increase for the companies of agency conflict measured by extreme CEO ownership. However, we failed to find any statistically significant simultaneous reduction in donations after 2015. This study does not provide evidence that investments in CSR of Korean firms are not due to CEOs' personal interest-seeking. Instead, we showed that the dividend tax cut event may not work as a universally applicable quasi-experimental setting to detect management overinvestments in CSR.