The Interplay Between Dividend Policy and CSR: Insights into Board Governance Effectiveness

The balance between dividend distribution and Corporate Social Responsibility (CSR) signifies a critical strategic challenge for firms, particularly in emerging markets. While dividend policy stimulates the allocation of earnings, CSR activities reflect a firm's commitment to social and environmental responsibilities. Board governance mechanisms may play a vital role in mediating this relationship. This study investigates the impact of dividend policy on CSR engagement and examines how board governance effectiveness moderates this relationship in publicly listed firms on the Pakistan Stock Exchange. Employing a dynamic panel data approach with the System Generalized Method of Moments (System GMM) estimation, the research analyses a panel of 100 firms over ten years from 2014 to 2023. Key variables include dividend payout ratio, CSR scores, and board governance indicators, controlling for firm size, leverage, and industry effects. Findings reveal a significant negative association between dividend payout and CSR activities, indicating that higher dividend payments tend to reduce CSR investment. However, effective board governance positively moderates this relationship, enabling firms to balance shareholder returns with social responsibility. Larger firms tend to engage more in CSR, while leverage negatively impacts CSR initiatives. The study underscores the importance of strong board governance in harmonizing dividend policies with CSR objectives, particularly in emerging markets. These insights have implications for corporate managers, investors, and policymakers aiming to foster sustainable and responsible corporate growth.