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Corporate life cycle, CSR, and dividend

policy: empirical evidence of Indonesian
listed firms
Febi Trihermanto and Yunieta Anny Nainggolan
per cent of its earnings in environmental development and business
Abstract Purpose – This paper aims to examine the association between corporate social responsibility Institut Teknologi Bandung,
(CSR) and corporate life cycle as well as dividend policy in Indonesia. Design/methodology/approach – The paper Bandung, West Java, Indonesia.
develops two hypotheses that are tested empirically through multivariate settings. The tests are conducted using a sample
of 527 Indonesian listed firms and 923 Indonesian firm-year observations between 2008 and 2015. Findings – The
findings support the hypothesis that CSR expenses increase when firms enter the maturity stage of their life cycle. On the
triple bottom line components of CSR, firms which invest on CSR economic are in their maturity stage of their life cycle. The
evidence also suggests that firms’ social donation and charitable giving increase as firms become mature. Furthermore, the
strong evidence supports the hypothesis that firms’ CSR expenses positively affect dividend policy. This finding is robust to
the alternative measurement of dividend payout, additional firms’ characteristics and instrumental variable to address
endogeneity. Practical implications – For investors in Indonesian listed firms, it is more profitable to invest in socially
responsible firms than socially irresponsible firms. For firms, the results imply that spending in CSR does not reduce
performance, thus becoming attractive for investors. Originality/value – To the best of the authors’ knowledge, there is
thin literature investigating the relation between corporate life cycle, CSR, and dividend policy in emerging markets while it
is important as it could encourage companies to integrate CSR into their business strategy and transparently disclose their
CSR activities. Further, as previous research on these topics mainly conducted using the US data (Rakotomavo, 2012;
Benlemlih, 2014; Hasan and Habib, 2017), which most of CSR disclosures are voluntary, this paper contributes to the
existing literature by examining these topics in a country where CSR is mandatory by the law. Keywords Indonesia,
Corporate social responsibility, Dividend policy, Corporate life cycle Paper type Research paper

Introduction
Corporate social responsibility (CSR) has appeared as a global trend and encouraged companies to build
sustainable businesses. The United Nations Industrial Development Organization defines CSR as “a
management concept whereby companies integrate social and environmental concerns in their business
operations and interactions with their stakeholders.” This CSR concept has been introduced around the world
and applied in many countries through different ways.

In Indonesia, CSR is mandatory to all listed companies and regulated under the Law Number 40 of 2007.
Although the law does not require companies to spend a certain amount of their earnings on CSR activities, Received 20 September 2017
firms with substantial impact on the environment must allocate 1-3 Revised 6 July 2018 Accepted 30
November 2018

j
DOI 10.1108/SRJ-09-2017-0186 © Emerald Publishing Limited, ISSN 1747-1117 j SOCIAL RESPONSIBILITY JOURNAL

Febi Trihermanto and Yunieta Anny Nainggolan, both are based at the School of Business and Management,
partnership to the community (Shauki, 2011; Hermawan and Mulyawan, 2014). It is very important for
companies in Indonesia to focus on complying with regulatory systems, through CSR, to promote their
sustainable products or services and increase their company’s image
(Tjiptono and Arli, 2014). Despite there is still no standard for the implementation mechanism of CSR in
Indonesia, almost all largest listed companies in this country have applied social activity in their businesses.
KPMG 2015 survey reported that 99 of 100 largest listed companies in
Indonesia have defined their CSR strategies and objectives clearly in the annual report. However, Waagstein
(2011) emphasizes that the law enforcing sanction in the absence of CSR compliance must be clearly stating
the aim and beneficiaries, precise, and unambiguous to avoid the diversity of standards and the confusion for
the stakeholders to implement the CSR. Regardless of the implementation standard, the Indonesian firms’ CSR
 expenses disclosure increases significantly by year since 2008 (Nainggolan et al., 2017) indicating that firms
consider integrating CSR into their business strategy.

In the recent decade, companies using CSR as a new strategy to meet stakeholders’ demand on sustainability
commitment and increase their firm value (Robinson et al., 2011). A case study conducted by Hidayati (2011)
using four listed companies in Indonesia – i.e PT Sari Husada Tbk, PT Unilever Indonesia Tbk, PT Aneka
Tambang Tbk and PT Astra International Tbk – shows that CSR can help to achieve the sustainable
development. These four companies have successful CSR implementation which has led them to become a
market leader in their respective industries and place their shares in the blue chip category. Moreover,
Turcsanyi and Sisaye (2013) highlight that integrated sustainability and CSR in companies’ strategic planning
indirectly promote financial performance in the long run. Further, because of CSR’ practical and strategic
implications, a wide variety of academic literature on the relationship between CSR and corporate finance
topics arise.

Prior studies on CSR mainly focus on the possible relation between corporate social performance (CSP) and
corporate financial performance (CFP). For example, Margolis and Walsh (2003) analyzed 127 published
studies in the past three decades (1972-2002) and found that the majority (55 per cent) of the results pointed to
a positive relation between CSP and CFP. Van Beurden and Gossling (2008) also generally conclude the same
results by reviewing
24 studies using meta-data analysis. Recently, the literature on CSR focuses not only on the CSR and CFP link
but also to another relevant topics in corporate finance, such as the link between CSP and the cost of capital (
El Ghoul et al., 2010; Cajias et al., 2014) , the connection between CSR and information asymmetry (Dhaliwal
et al., 2011; Lu and Chueh, 2015) , the relationship between CSR investments and dividend policy (
Rakotomavo, 2012; Benlemlih, 2014) and also the link between CSR and corporate life cycle (Hasan and
Habib, 2017).
This paper focuses to investigate the least discussed topics in the relation to CSR, which are corporate life
cycle and dividend policy. Although there have been some researches on life cycle in corporate finance area (
Rakotomavo, 2012; Hasan and Habib, 2017), there is still thin literature on the relationship of corporate life
cycle, CSR and dividend policy especially in emerging markets such as Indonesia. Therefore, this study will
extend the literature on corporate life cycle in the context of emerging markets; and specifically on the
relationship with CSR and dividend policy. Dividend policy implemented in developed markets is expected to be
different with those in emerging markets where shareholder wealth maximization may not necessary be the
goal of the firm and also given the differences in terms of culture and ethical reasoning (Ge and Thomas, 2008;
Lam and Shi, 2008; Li et al., 2016). Further, as previous research on these topics mainly is conducted using the
US data, which most of the CSR disclosures are voluntarily (Abernathy et al., 2017), it is also imperative to
explore these issues in Indonesia, as CSR became mandatory by the Indonesian law just recently. The context
that Indonesia is still recently implementing CSR enriches the contribution of this study in understanding on
how firms in Indonesia

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Thus, the objectives of this research are as follows:

 expenses;
■
to investigate whether the corporate life cycle affects the Indonesian firms’ CSR and

■ to examine whether CSR determines the dividend policy in Indonesia.

Literature review and hypothesis development Dividend policy

The empirical and theoretical literatures on dividend policy have been developed extensively since Miller and
Modigliani’s (1961) dividend irrelevance theory. This paper will briefly introduce several theories of dividend
policy, which are relevant with the research topic:

Bird in hand theory. Lintner (1962) and Gordon (1963) confirm that dividend policy affect firm value, contrary to
the Miller and Modigliani’s (1961) dividend irrelevance theory that suggest firms’ dividend policy does not affect
its value and that shareholders are indifferent to whether their returns from receiving cash dividend now or
future capital gains. Shareholders prefer the certainty of dividend payment to the possibility of higher future
capital gains that might or might not appear if the earnings are retained.

Agency theory. Jensen and Meckling (1976) define agency relationship as a contract between shareholders and
managers to perform some services on their behalf and to delegate some decision making. According to the
agency theory, there is no guarantee that managers will always make the best decision for the shareholders.
Managers can use company’s profit for their personal own use or retain it to invest in risky project for their own
benefit unless it is paid out as dividends to the shareholders. Kalay (1980) and Jensen (1986) highlight that
reducing the resources under managers’ control by using high dividend payout could help controlling the
agency cost of free cash flow.

Life-cycle theory. According to Mueller (1972) and Fama and French (2001), the dividend policy changes over
the firms’ different life-cycle stages. Firms in early stage of their life cycle tend to be small with more investment
opportunities, but are not sufficiently profitable to generate cash internally to pay dividends. As a result, early
stage firms prefer to fund their investment project rather than pay the dividends to the shareholders. On the
other hands, mature firms tend to be large with less investment opportunities. In this stage, the firms are able to
generate cash internally and become optimal for these firms to pay more dividend to shareholders. Cash
distribution in this stage is very important to avoid the agency cost of free cash flow.

Corporate life cycle

The term of corporate life cycle was first derived from the literature of organizational science (Hasan and Habib,
2017). Penrose (1959) argues that the growth of firms depends on their resources (human capital, financial and
organizational resources) and productive opportunities. In a later study, Wernerfelt (1984) introduces the
resource-based view (RBV) theory and suggests that resources are the main source to establish a competitive
advantage. Hart (1995) examines CSR using the RBV framework and argues that firm sustained competitive
advantage is led by environmental friendly resources. Furthermore, Helfat and Peteraf (2003) introduce the
dynamic RBV to explain the evolution of organizational capabilities and document that firms’ resources portfolio
changes over time at the different corporate life cycle stages.

Recent studies examine the link between firm life cycle, financing and corporate investments. Richardson
(2006) suggests that, in the early stage, firms tend to have larger

j SOCIAL RESPONSIBILITY j
 JOURNAL

investment opportunities than in their mature stage. Bulan and Yan (2010) identify firm life cycle into two main
stages which are growth and mature stages. They find that mature firms are older and more stable with high
profitability compare to the growth stage firms.

Relationship between corporate life cycle and corporate social responsibility

A few research studies have been conducted to examine the relationship between corporate life cycle and
CSR. Rakotomavo (2012) examines the relation between life cycle characteristics – retained earnings to total
equity and retained earnings to total assets as proxies for firm maturity, firm size, profitability and growth – and
CSR investments. Using a large sample of 17,670 US firm year observations over the period from 1991 to
2007, he concludes that larger and more profitable firms with greater retained earnings tend to invest more in
CSR. Furthermore, Hasan and Habib (2017) address a link between corporate life cycle and CSR by using a
large sample of 25,417 US firm year observations covering the period 1991 to 2013. They provide evidence of
a positive relation between firm maturity and CSR initiatives.

To examine the relationship between corporate life cycle and CSR in Indonesia, theoretical perspectives of
stakeholder and RBV theories are used in this research. First, Freeman’s (1984) stakeholder theory provides
support that firms should satisfy not only shareholders but also all of the legitimate stakeholders to achieve the
firms’ objectives. This theory also suggests that firms’ CSR is one of the best payout form to satisfy the various
stakeholders by integrating ethical aspects of wealth creation (Benlemlih, 2014). Companies begin to realize
that greater social and environmental responsibilities can lead to a higher firm performance. Some of these
responsibilities include contributing to communities, charitable giving, improving workplace conditions,
eliminating waste and using efficient resources. Hidayati (2011) highlights that economic, social and
environmental responsibilities, known as triple bottom line, are a systematic approach to managing a
company’s responsibility. Further, Attig et al. (2013) highlight that socially responsible firms are mainly in their
mature stage of their life cycle. Second, RBV theory suggests that firms in mature stage have more resources
to establish a competitive advantage than growth stage firms. According to these theories, firms in mature
stage tend to be larger and more profitable with greater retained earnings and less growth opportunities than
firms in their growth stage. Focusing on the two main stages of corporate life cycle (Bulan and Yan, 2010), CSR
expenses are expected to increase when firms entering the maturity stage of their life cycle. These theories are
then used to test the relation between CSR and corporate life cycle in Indonesia. It may be possible that when
mandatory the CSR spending may not be related to the corporate life cycle of Indonesian firms. Thus, the first
hypothesis is tested for Indonesian firms as follows:

H1. CSR expenses of Indonesian firms increase at the maturity stage of corporate life cycle.

Relationship between corporate social responsibility and dividend policy

There are only few studies that examine the impact of CSR expenses on dividend policy. Rakotomavo (2012)
examines whether CSR investments are taken from expected dividends. He uses model that developed by
Grullon and Michaely (2002) from Lintner (1956) to measure expected dividends as a proxy to estimate the
dividend forecast errors. The underlying idea by using this model is if the deviations from these dividend
forecast errors are positively (negatively) associated with share repurchases, then the share
repurchase/dividend are complements (substitutes). After regressing the dividend forecast errors against CSR
investment, he finds that CSR investments do not cut into dividends. This result implies that CSR investments
may increase firms’ stock value.
 Benlemlih (2014) examines the importance of dividend policy, using a large sample of 3,040 US firms between

1991 and 2012 covered by KLD, to control CSR’s overinvestment

j SOCIAL RESPONSIBILITY j

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problems due to agency issues in socially responsible firms. He then develops model using the set of control
variables that commonly used in prior studies on dividend policy (Fama and French, 2001) to better isolate the
impact of CSR variables. His results provide strong evidence that high CSR firms pay more dividends than
lower CSR firms and suggest that dividend payout is more stable in high CSR firms than in low CSR firms.

The second hypothesis of this research is constructed based on the theoretical arguments of the agency theory,
the bird in hand theory, the stakeholder theory, and the life cycle theory, as constructed by Benlemlih (2014).
First, based on agency theory, the payout helps to reduce the potential inefficient use of firm’ resources by
managers and is likely to discourage them to over-invest in CSR. Second, according to the bird in hand theory,
rational investors are more demanding for dividends from socially responsible firms as it reflects transparency
and wealth creation. Furthermore, based on the stakeholder theory (Freeman, 1984) , firms objective are
beyond its framework of maximizing shareholders’ wealth by creating its wealth in a sustainable way to keep the
interest of its legitimate stakeholder align in the same direction. At last, based on life cycle theory, mature firms
tend to be large with few investment opportunities and generate higher cash internally than profitably invested
to pay dividends to the shareholders and to avoid the agency cost of free cash flow. Further, Attig et al. (2013)
highlight that mature firms with high experiences and management skills are more likely to invest strategically in
CSR activities than younger firms. Thus, with the experience that they have and access to more free cash flow,
this study expects that Indonesian firms with high CSR expenses will adopt high dividend payout strategy.
Further, for Indonesian firms, it may be the fact that firms with higher CSR expenses may have higher concern
for shareholder wealth maximization. Therefore, based on these four theories, the second hypothesis is as
follows:

H2. CSR expenses of Indonesian listed firms are positively associated with dividend policy.

Data and methodology Corporate social responsibility

data and measurements

This research follows Pyo and Lee (2013) and Nainggolan et al. (2017) to use CSR expenses as the proxy for
CSR measurement to investigate the relationship between corporate life cycle and CSR and also the link
between CSR and dividend policy. It is then transformed into natural logarithm of CSR (CSR_ALL) to reduce
the variance of the data and curtails the problem of outliers in the data. This method is used because it is more
reliable and applicable for a large data set than any other CSR measurements that have been introduced for
Indonesian context (Wibowo, 2012; Hermawan and Mulyawan, 2014). Further, this paper investigates the CSR
expenses of 527 Indonesian listed firms over 2008- 2015 period which cover 923 firm year observations.

To be more specific, CSR expenses of the companies are divided into three categories
(Hidayati, 2011; Nainggolan et al., 2017) , following the triple bottom line approach, which are CSR economic
expenses (CSR_ECO), social expenses (CSR_SOC) and environmental expenses (CSR_ENV). CSR is
categorized as CSR_ECO if the company clearly states its CSR spending on business partnership, community
development and infrastructure projects on their annual or sustainability reports. CSR is then categorized as
CSR_SOC if the company clearly states its CSR spending on education, charitable giving and any other social
donations on their annual or sustainability reports. Finally, CSR is categorized as CSR_ENV if the company
clearly states its CSR spending on natural conservations and environmental protection activities. This study
also records, if stated on the annual or sustainability reports, companies’ CSR_ECO, CSR_SOC and CSR_ENV
that cover 65, 199 and 91 firm year observations, respectively.

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In Table I, using similar CSR data with Nainggolan et al. (2017), this paper presents the CSR data composition
by year and by industry (based on nine sectoral indices of Jakarta Composite Index). The CSR data distribution
by year shows that firms’ CSR expenses disclosure increases significantly by year (Nainggolan et al., 2017)
indicating that firms consider CSR as important part of their business strategy. However, the number of CSR
expenses disclosure on CSR_ECO, CSR_SOC and CSR_ENV are inconsistent because Indonesian listed
companies enclose their CSR activities and reports in a variety way with no standard apply (Lindgren and
Hendeberg, 2009; Waagstein, 2011). For example, several companies enclose their CSR activities in detail
including the expenses of each CSR activities while other companies only mention their CSR activities in
general. The way companies record its CSR spending also different from each other. Several companies
record its CSR spending as expenses while the other companies use their retained earnings as their source of
CSR fund, particularly CSR_ECO. In addition, the CSR data distribution by industry shows that financial
industries have the largest number of observations with more than 20 per cent of the sample suggesting that
financial industries in Indonesia are already well regulated and comply with the regulatory system, while the
agriculture industries have the smallest number of the sample with 5.31 per cent of population.

Research methodology Corporate life cycle and corporate social

responsibility
To test the first hypothesis on the relationship between overall CSR expenses (as well as CSR economic,
social and environment) and firm maturity, this study adopts a regression model similar to Rakotomavo (2012):

Table I CSR data breakdown by year and industry

SR_ECO CSR_SOC CSR_ENV N (%) N (%) N (%) N (%)

Year

2008 19 2.06 0 0 5 2.51 2 2.20 2009 3 0.33 0 0 0 0 0 0 2010 62 6.72 7 10.77 18 9.05 8 8.79 2011 86
9.32 7 10.77 22 11.06 12 13.19 2012 132 14.30 12 18.46 39 19.60 16 17.58 2013 175 18.96 19 29.23
58 29.15 26 28.57 2014 217 23.51 9 13.85 26 13.07 11 12.09 2015 229 24.81 11 16.92 31 15.58 16
17.58 TOTAL 923 100 65 100 199 100 91 100

Industry N (%) Agriculture 49 5.31 Basic Industry and Chemicals 127 13.76 Consumer Goods Industry
55 5.96 Finance 191 20.69 Infrastructure, Utilities and Transportation 67 7.26 Mining 100 10.83
 Miscellaneous Industry 51 5.53 Property and Real Estate 131 14.19 Trade, Services and Investments 152 16.47 Total 923
100.00

Note: This table presents CSR data distribution by year (2008-2015) and by industry (according to nine sectoral indices of
Jakarta Composite Index) Source: Nainggolan et al. (2017)

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CSRit 1 ⁄4 a þ b 1 Â Life Cycle Characteristics þ b 2 Â Control Variables þ d

 Industry Dummies þ g  Year Dummies þ « it

where CSR
it represents the overall CSR expenses (CSR_ALL) as well as triple bottom line components of CSR:
CSR economic expenses (CSR_ECO), CSR social expenses (CSR_SOC) and CSR environmental expenses
(CSR_ENV). The life cycle characteristics and control variables are then selected from prior literatures (Fama
and French, 2001; DeAngelo and DeAngelo, 2006; Rakotomavo, 2012). The life cycle characteristics in this
model include RE_TE, RE_TA, ROA, Lagged ROA, Size, and Growth, while the control variables include
TE_TA, Cash and BUMN. This model is modified by adding BUMN variable to examine the role of Indonesian
Government in affecting firms’ CSR activities. The detail measurement of all variables is available in the
Appendix. Moreover, to control industry fixed effects, this research uses industry dummy variable which may
affect the link between firms’ dividend policy and CSR expenses. The industry dummy variables are based on
IDX nine industrial classification. This research also adds each year dummy variable to control the change of
economic situation. Finally, the ordinary least squares (OLS) regression models’ robust standard errors are
adjusted for both heteroskedasticity and clustering of observations.

Corporate social responsibility and dividend policy

To study the relationship between CSR expenses and dividend policy, this research uses multivariate based
approach on the regression models. The following model (Benlemlih, 2014) is used to run regression of
dividend policy on the overall CSR expenses (also on CSR economic, social and environment) and other
control variables:

DIVi,t 1 ⁄4 a þ b 1  CSRi,t þ b 2  Control Variablesi,t þ d  Industry Dummiesi,j þ g

 Year Dummiesi,j þ « i,t

where DIV
i,t represents firms’ cash dividend (LN_DIV); CSR i,t represents the overall CSR expenses (CSR_ALL)
as well as triple bottom line components of CSR: CSR economic expenses (CSR_ECO), CSR social expenses
(CSR_SOC) and CSR environmental expenses (CSR_ENV). This study selects control variables for this model
based on the research conducted by Benlemlih (2014). The control variables that used in this model are Size,
Cash, Growth, Leverage, ROA, RE_TE and BUMN. BUMN variable is added to examine whether this variable
indirectly affects firms’ dividend policy, as CSR is mandatory for Indonesian listed companies. The detail
measurement of all variables is available in the Appendix. Furthermore, this study also controls for industry and
year effect in the regression model. Finally, the regression models are robust to the presence of
heteroskedasticity and clustered by firm.

Data analysis and results Descriptive analysis

Table II provides summary statistics for Indonesian listed firms’ CSR data for 2008 – 2015 period. Panel (A)
provides different statistics for the overall CSR expenses as well as CSR_ECO, CSR_SOC and CSR_ENV.
This panel shows that Indonesian firms’ CSR expenses are still focus on social donation and charitable giving,
indicated by the mean of CSR_SOC that higher than its median compared to CSR_ECO and CSR_ENV.
Moreover, the
CSR disclosures in Indonesia are always voluntarily (Shauki, 2011; Hermawan and Mulyawan,
2014) as several companies in panel A clearly state that they only spend on CSR_SOC. Panel (B), in Table II,
provides the overall CSR expenses over time. Since 2010, firms’ average CSR expenses are higher than its
median, suggest that more than 50 per

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Table II Descriptive statistics for CSR data from 2008 to 2015

Variables N Mean SD Min Median Max

Panel A: Descriptive statistics for CSR data CSR_ALL 923 20.94 2.37 10.93 20.82 26.96 CSR_ECO 65
18.75 7.88 0 21.58 25.71 CSR_SOC 199 20.50 2.56 9.68 20.33 26.26 CSR_ENV 91 18.95 5.25 0 19.76 25.67

Panel B: Descriptive statistics by year for total CSR data 2008 19 20.97 2.17 16.19 21.23 25.30 2009 3
22.35 2.41 19.78 22.70 24.57 2010 62 21.24 2.22 16.05 21.19 26.37 2011 86 21.27 2.44 16.11 21.07
26.60 2012 132 21.11 2.47 16.12 21.02 26.90 2013 175 20.79 2.35 15.13 20.69 26.48 2014 217 20.75

2.42 10.93 20.71 26.96 2015 229 20.92 2.32 16.10 20.83 26.83

Notes: This table presents descriptive statistics for CSR data for the 923 firm-year observations between 2008 and 2015.
Panel A shows the number of observations, mean, standard deviation, minimum, median and maximum for the overall
CSR expenses (CSR_ALL), as well as the triple bottom line components of CSR, which are CSR_ECO, CSR_SOC and
CSR_ENV. Panel B reports the number of observations, mean, standard deviation, minimum, median and maximum for the
overall CSR expenses per year. Panel C provides the number of observations, mean, standard deviation, minimum,
median and maximum for the relative CSR (Relcsr) used in the robustness test section
j SOCIAL RESPONSIBILITY j

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cent of Indonesian listed firms spend higher CSR expenses than previous years and begin to integrate their
CSR activities as a part of their business strategy.

The descriptive statistics for the regression variables are presented in Table III. Panel A in Table III presents
descriptive statistics of the main dependent variables and shows that more than 50 per cent of Indonesian
listed firms in the sample are not dividend payers. Panel B in Table III provides descriptive statistics for the
control variables and shows that on average the sample includes young (median retained earnings as
percentage of total equity and total assets are less than 50 per cent), profitable (median ROA 2.87 per cent),
liquid (median Cash 7.53 per cent) and slow growth firms (median Growth 4.70 per cent) with high level of debt
(median Leverage 57.14 per cent).

Table III Descriptive statistics for regression variables from 2008 to 2015
Variables N Mean SD Min Median Max

Panel A: Descriptive statistics for dividend variables LN_DIV 2896 11.3672 12.3634 0 0 33.6006

Panel B: Descriptive statistics for control variables RE_TE 2900 0.0943 4.4805 À114.6345 0.3346
50.8059 RE_TA 2901 À0.4949 12.2462 À545.8987 0.1056 1.1034 TE_TA 2901 0.3008 3.5924
À162.8547 0.4486 1.0000 ROA 2901 À0.0270 2.7821 À112.4892 0.0287 24.1084 Size 2901 28.3190
1.8990 19.0029 28.3022 34.4445 Growth 2826 0.0479 0.2205 À2.2507 0.0467 2.5792 Cash 2901
0.1203 0.1679 0 0.0753 3.9703 Leverage 2901 0.7002 3.5923 0 0.5514 163.8547

Notes: This table shows the descriptive statistics for the regression variables for the 2,901 firm-year observations between
2008 and 2015. Panel A reports number of observations, mean, standard deviation, minimum, median and maximum for
the dependent variable. Panel B provides number of observations, mean, standard deviation, minimum, median and
maximum for the control variables. All variables are defined in the Appendix
Correlation analysis
Table IV provides the pairwise correlation test among the regression variables. LN_CSR is positively and
significantly associated with RE_TE, RE_TA, ROA, Size and Cash (all at p < 0.01) and negatively and
significantly associated with TE_TA (p < 0.01). Overall, the correlation between LN_CSR and control variables
in the regression models is consistent with the prediction. Further, LN_DIV is positively and significantly
correlated with RE_TE, Size, Cash, LN_CSR (all at p < 0.01), ROA and Growth (all at p < 0.10) and negatively
and significantly associated with Leverage (p < 0.05). This correlation test results are also in line with the
predictions.

Corporate life cycle and corporate social responsibility expenses

Table V shows estimation from the regression results for the effect of corporate life cycle on CSR expenses. In
this regression model, the overall CSR expenses are used as a dependent variable in Models 1 and 5, and the
life cycle characteristics and control variables are used as the regressors. This study finds that the results are
consistent in both regressions. It expects that retained earnings, firm size and profitability will positively affect
CSR expenses. The regression results show that the estimated coefficients of SIZE and Lagged ROA are
positive and significant at the 1 per cent level while the retained earnings variable are positive and significantly
affect CSR expenses at the 5 per cent level in Model 1. In addition, the estimated coefficient of TE_TA is
negative and significant at the 10 per cent level, while the Cash variable shows a positive and significant
 relation to CSR. Finally, the estimated coefficient of BUMN variable is positive and significant at the 1 per cent
level.

On the triple bottom line components of CSR, Models 2 and 6 show the regression results for the effect of life
cycle characteristics on CSR economic. The estimated coefficients of SIZE are positive and significant at the 1
per cent level in both regression models, while the retained earnings and profitability variable do not
significantly affect CSR expenses. Moreover, the estimated coefficients of Cash are positive and significant at
the 10 and 5 per cent level in
Models 2 and 6, respectively, while Growth are negative in both models and significant at the 5

per cent level in Model 6.

Furthermore, this study uses CSR social expenses as dependent variable in Models 3 and 7. The regression
results show that the estimated coefficients of SIZE, and Lagged ROA are positive and significant at the 1 per
cent level, while the retained earnings variables are positive and significant at the 10 per cent level in both
models. Moreover, this paper provides regression results for the effect of CSR environment on firms’ retained
earnings, size, and profitability in Models 4 and 8 but find no relation between CSR environment and all
variables.

Corporate social responsibility expenses and dividend policy

This study provides results from the multivariate analysis of overall CSR expenses as well as CSR economic,
social and environmental expenses. Table VI presents estimations from regression for the effect of CSR
expenses on firms’ dividend policy. In Model 1, natural logarithm of cash dividend (LN_DIV) is regressed on the
overall CSR expenses (CSR_ALL) without using any control variable. This study finds a strong evidence of a
positive relationship between CSR expenses and dividend payout. The regression result supports the
hypothesis and shows that the estimated coefficient of CSR_ALL is positive and statistically significant at the 1
per cent level. This study then uses the potential control variables from prior literatures in Model 2 and finds the
same result that high overall CSR expenses lead to higher dividend payout, similar with prior research in the US
context (Benlemlih, 2014). However, the regression result for the effect of CSR_ECO (Model 3) on firms’
dividend payout shows negative and insignificant result, while the regressions of

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Table VI Multivariate analysis of CSR expenses and dividend policy

N_DIV DIV Simple Main Triple bottom line approach Alternative

Variables

CSR_ALL 1.508ÃÃÃ (6.87) 1.103ÃÃÃ (3.55) 0.501ÃÃÃ (2.87) CSR_ECO À0.138 (À0.83) CSR_SOC 0.209 (0.28) CSR_ENV 0.507 (1.38) Size

1.364ÃÃÃ (3.00) À1.887 (À1.22) 1.268 (1.42) 2.773ÃÃÃ (2.51) 0.538ÃÃ (2.24) Cash 6.133Ã (1.82) 10.075 (1.01) 3.904 (0.57) 10.907 (1.04)

2.998 (1.55) Growth À0.308 (À0.13) À6.792ÃÃ (À1.93) 5.468 (1.32) À4.864 (1.56) 0.121 (0.12) Leverage À4.514ÃÃÃ (À3.26) 17.888ÃÃ (2.22)

À2.483 (À0.39) 22.029ÃÃÃ (2.66) À2.643ÃÃ (À2.12) ROA 17.891ÃÃÃ (3.98) 21.787ÃÃÃ (2.92) 21.104ÃÃÃ (2.79) 55.658ÃÃÃ (6.44) 8.297ÃÃÃ (2.74)

RE_TE 0.591ÃÃÃ (2.67) À0.744 (À0.83) 1.025ÃÃÃ (3.96) À0.201 (À0.20) 0.467Ã (1.84) BUMN 2.060 (0.87) 10.934ÃÃ (1.99) 8.057Ã (1.86)

5.356 (1.09) 1.032 (0.88) Industry Yes Yes Yes Yes Yes Yes Year effects Yes Yes Yes Yes Yes Yes Constant À17.914 ÃÃÃ (À3.87)

À45.138ÃÃÃ (À3.94) 53.378 (1.13) À15.439 (À0.71) À80.790ÃÃÃ (À1.71) À22.576ÃÃÃ (À3.42) R2 0.112 0.234 0.528 0.245 0.410 0.757 Max.

VIF 2.00 1.98 4.36 2.82 5.63 1.98 N 923 914 64 196 90 914

Notes : The table presents regressions for the effect of CSR on firms’ dividend policy. The dependent variable in columns (1), (2), (3) (4) and (5) is natural
logarithm of dividend and dummy variable in columns (6). All variables are defined in the Appendix . The t statistics shown in parentheses are based on
Ã
standard errors that are robust to the presence of heteroskedasticity and clustered by firm. Statistical significance at 10, ÃÃ 5 and ÃÃÃ 1% levels, respectively
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CSR_SOC (Model 5) and CSR_ENV (Model 6) on firms’ dividend payout show positive and insignificant results.
Further, to confirm the main result, a different measurement of dividend payout is applied in Model 6. This study
uses a dummy variable (DIV) equal to 1 if the firm pay dividend and 0 otherwise for the dependent variable and
then run a logistic regression. This result also consistently shows statistically significant relation between the
probability of a firm pay dividend and high CSR expenses.

On control variables, the main results are in line with prior studies (Fama and French, 2001; DeAngelo et al.,
2006; Benlemlih, 2014). The estimated coefficients of firm size and retained earnings are positive and
statistically significant at the 1 per cent level, while firm leverage is negatively affected dividend payout. In
addition, the estimated coefficient of firm’s profitability and cash holding are positive and statistically significant
at the 1 and 10 per cent level, respectively, while firms’ growth and BUMN variable do not significantly affect
dividend payout.

Robustness test Sub-sample analysis

In Table VII, this paper presents results from the multivariate analysis comparing the dividend level of high CSR
and low CSR firms, by replicating the main model (Table VI, Model 2), to examine whether high CSR firms pay
more dividend than low CSR firms. The high CSR firms consist of the CSR data that greater than or equal to
the median of overall CSR data, while low CSR firms are consist of the CSR data that less than the median of
overall CSR data. After regressing both Models 1 and 2, this study finds that 1 percentage change in overall
CSR expenses of high CSR firms result in 2.35 percentage change in dividend payout, give a higher payout
than low CSR firms that only result in 1.05 percentage change in dividend payout. These results confirm the
main finding that high CSR expenses are positively related to high dividend payout.
Table VII Sub-sample analysis of CSR expenses and dividend policy
High CSR firms Low CSR firms

Variables

CSR_ALL 2.333*** (3.82) 1.047** (2.04) Size 0.999 (1.41) 1.865*** (3.10) Cash 10.894** (2.27) 4.814
(1.04) Growth À1.686 (À0.26) À0.097 (À0.07) Leverage À3.372* (À1.71) À3.070* (À1.87) ROA 25.459***
(3.37) 12.499** (2.22) RE_TE 0.726*** (4.70) 0.565 (1.33) Industry Yes Yes Year effects Yes Yes
Constant À65.675*** (À4.18) À57.036*** (À3.19) R2 0.298 0.170 N 455 459

Notes: The table presents regressions for the effect of CSR on firms’ dividend policy. The dependent variable in Columns
(1) and (2) is natural logarithm of dividend. This study uses relative CSR as proxy for CSR measurement in both models.
All variables are defined in the Appendix . The t statistics shown in parentheses are based on standard errors that are
robust to the presence of heteroskedasticity and clustered by firm. Statistical significance at *10, **5 and ***1% levels,
respectively

Additional control variables

In Table VIII, this study runs the models after adding some additional variables to the main (Model 2) and
alternative (Model 6) model in Table VI to control potential omitted variables that may affect firm dividend
payout. These additional control variables include: Loss (Lo et al., 2010), a dummy variable that equal to one if
companies show losses for two consecutive years and zero otherwise. Firm Age (Benlemlih, 2014; Nainggolan
et al., 2017) is measured as the number of years between the fiscal year and the initial public offering (IPO)
date in the database. Firm Q (Benlemlih, 2014; Nainggolan et al., 2017) is measured as the market value of
total assets divided by the book value of total assets. This study expects firms with high loss pay fewer
dividends, while older firms with high Firm Q tend to pay more dividends.

The results in Table VIII provide strong evidence that support the findings on the relationship between CSR
expenses and dividend policy. The coefficient on Loss is negative and significantly (at the 1 per cent level)
affects dividend payout in both Models 1 and 5. The second additional variable, Firm Age, shows a positive and
significant (at the 10 per cent level) relation with dividend payout in both models 2 and 6. In both Models 3 and
7, this study finds positive but insignificant relation between Firm Q and dividend payout. All the additional
variables are then included in both Models 4 and 8, and the same results concerning the additional variables
are found. All of the models in Table VIII show a positive and significant (at the 1 per cent level in all models
except Model 8) relation between CSR and dividend payout. It shows that adding additional firm’ characteristics
do not affect the findings on the relationship between CSR and dividend payout.

Endogeneity test
This study uses relcsr (Erhemjamts et al., 2013; Nainggolan et al., 2017) as the instrumental variable to control
the endogeneity problem between the overall CSR expenses and dividend payout. The instrumental variable
test consists of two step regression: First, the CSR_ALL is regressed on the instrument and on the control
variables used in the main model (Models 2 Table VI). Second, the predicted value of

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CSR_ALL is used as the independent variable in the main model (Models 2,, Table VI). In Table IX, the result of
the first stage regression is presented in Model 1 and the result of the second stage in Model 2. The first stage
regression results suggest that larger and more profitable firms with high cash holding spend higher overall
CSR expenses. Furthermore, the instrumental variable (relcsr) is positive and significantly affects firms’ overall
CSR expenses (LN_CSR). In model 2, this paper provides strong evidence that the relation between the overall
CSR expenses and dividend payout remain significant (at the 1 per cent level). This result supports the earlier
findings and suggests that the result is not affected by the endogeneity problem.

Discussion
In general, this research brings specific understanding on the quantitative research method. In particular, it
gives a deeper understanding in the importance of corporate life cycle to specify firms’ CSR spending and the
importance of CSR expenditure to determine firms’ dividend policy. All the variables measurements,
methodology and data analysis method in this quantitative study can be comprehended clearly. This study
could be a guideline to better understand the role of CSR for both investors and firms in Indonesia.

The result in Table V provides evidence that large and profitable firms with greater retained earnings tend to
invest more on CSR. These results support the argument that firm size and profitability positively affect firms’
CSR investment (Rakotomavo, 2012). The result in model one shows that a one unit increase in retained
earnings results in 4.29 percentage change in overall CSR expenses. In terms of economic significance, as
both dependent and independent variables are log transformed, the coefficient of SIZE in model 1 implies that 1
percentage increase in total assets results in 0.83 percentage increase in overall CSR expenses. Meanwhile,
the coefficient of Lagged ROA in Model 1 implies that a one unit increase in lagged profits results in 166
percentage change in overall CSR expenses. Thus, with these characteristics, the results support the
hypothesis that CSR expenses increase at the maturity stage of corporate life cycle. In addition, the estimated
coefficient of TE_TA

Table IX Endogeneity test: instrumental variable

(1) (2) CSR_ALL d stage

Variables

LN_CSR 1.452*** (2.46) Size 0.723*** (24.85) 0.535 (0.92) Cash 0.980** (2.44) 14.121*** (3.87) Growth
À0.363 (À1.39) À1.634 (À0.57) Leverage 0.360*** (2.46) À2.510** (À2.16) ROA 2.234*** (4.09)
29.819*** (5.60) RE_TE 0.039 (1.46) 1.142*** (3.93) BUMN 1.116*** (8.19) 1.316 (0.77) Relcsr 2.653***
(14.92) Industry Yes Yes Year effects Yes Yes Constant À1.380 * (À1.72) À31.196*** (À3.98) R2 0.723

0.260 N 914 914

Notes: The table presents regression results for the instrumental variable approach that control endogeneity for CSR
variable. The dependent variable in Columns (1) and (2) is natural logarithm of dividend. This study uses relative CSR as
proxy for CSR measurement in both models. All variables are defined in the Appendix. The t statistics shown in
parentheses are based on standard errors that are robust to the presence of heteroskedasticity and clustered by firm.
Statistical significance at *10, **5 and ***1% levels, respectively

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indicating that firms with low shareholder equity ratio and high level of debt use CSR to increase their
reputation. Furthermore, the Cash variable implies that a large amount of cash is associated with high CSR
expenses. At last, the estimated coefficient of BUMN variable provides evidence that Indonesia’s state-owned
companies have been committed to report their CSR implementations on their annual and sustainability
reports.

This study contributes to the literature by adding the triple bottom line components of CSR into the corporate
life cycle topic. On the triple bottom line components of CSR, both Models 2 and 6 in Table V show the
regression results for the effect of life cycle characteristics on CSR economic. One of the notable result is the
estimated coefficients of SIZE that are almost eight times bigger than overall CSR models. Thus, the research
results suggest that firms which invest on CSR economic must be very large with an ability to generate more
cash internally than profitably invested, indicating that these firms are in their maturity stage of their life cycle (
Fama and French, 2001; Rakotomavo, 2012). Furthermore, this study uses CSR social expenses as dependent
variable in Models 3 and 7 in Table V, and finds that the results are consistent in both regressions. It expects
that retained earnings, firm size and profitability will positively affect CSR expenses. The regression results
suggest that larger and more profitable firms with greater retained earnings tend to increase their social
donation and charitable giving, consistent with the result of overall CSR expenses. Moreover, this paper
provides regression results for the effect of CSR environment on firms’ retained earnings, size, and profitability
in Models 4 and 8. The insignificant result of CSR_ENV in both models may be due to the small number of
observations on CSR_ENV and a large number of companies in Indonesia that more focus to spend on
CSR_SOC to increase their reputation (Shauki, 2011; Tjiptono and
Arli, 2014).

The main purpose of this paper is to examine the relationship between CSR expenses and firm dividend policy.
The regression result in Table VI Model 2 supports the hypothesis of CSR expenses of Indonesia listed firms
are positively associated with dividend policy and suggests that an increase in overall CSR expenses boosts
dividend payout. This study then uses the potential control variables from prior literatures in Model 2 and finds
the same result that high overall CSR expenses lead to higher dividend payout, similar with prior research in
the US context (Benlemlih, 2014). In terms of economic significance, the coefficient in Model 2 implies that 1
percentage increase in overall CSR expenses results in 1.1 percentage increase in dividend payout, while
holding all the variables constant. However, the regression for the effect of CSR_ECO (Model 3) on firms’
dividend payout shows negative and insignificant result, while the regressions of CSR_SOC (Model 5) and
CSR_ENV (Model 6) on firms’ dividend payout show positive and insignificant results. This study infers these
insignificant results are due to the small number of observations of companies specify their CSR expenses on
economic, social and environmental activities. Further, to confirm the main result, a different measurement of
dividend payout is applied in Model 6. This study uses a dummy variable (DIV) equal to 1 if the firm pay
dividend and 0 otherwise for the dependent variable and then run a logistic regression. This result also
indicates that firms’ high CSR expenses affect the decision to pay dividend.

On control variables, the main results are in line with prior studies (Fama and French, 2001; DeAngelo et al.,
2006; Benlemlih, 2014). The estimated coefficients of firm size and retained earnings suggest that large firms
with high retained earnings pay more dividend, while the estimated coefficient of firm leverage suggests that
firms with high debt to total asset ratio have low ability to pay dividend. In addition, the estimated coefficient of
firm’s profitability and cash holding provide evidence that profitable firms with large amount of cash are
associated with high dividend payout. Finally, firms’ growth and BUMN variable do not significantly affect
dividend payout. This result is robust to the alternative measurement of dividend payout, additional firms’
characteristics and instrumental variable to address endogeneity.
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Practically, the results of this study imply that, for investors, to invest in socially responsible firms are more
profitable than socially irresponsible firms. Further, for firms, the results imply that spending in CSR does not
reduce performance thus are attractive for investors. Finally, as previous research on the association between
corporate life cycle, CSR, and dividend policy mainly focused on developed countries (Rakotomavo, 2012;
Benlemlih, 2014; Hasan and Habib, 2017), this paper contributes to the existing literatures by examining these
topics in an emerging country. Generally, both developed and emerging countries show the same results thus
strengthen the possibility to generalize the findings of the topic discussed in this paper. This study also infers
that different CSR regulation in both the USA and Indonesia does not affect the research results on these
topics. This may imply that companies in emerging markets such as Indonesia also concern on CSR as much
as those in developed countries, and that companies that care about CSR also put concern about the
shareholder wealth.

Conclusions
This paper supports the argument developed by Nainggolan et al. (2017), stating that Indonesian listed firms
has been considering to integrate their CSR activities into business strategy as indicated by the mean of
average firms’ CSR spending that higher than its median from 2010 to 2015. However, the CSR spending of
these firms is still voluntarily and focus on social donation (Shauki, 2011; Hermawan and Mulyawan, 2014;
Nainggolan et al., 2017), and the way they enclose their CSR activities is still inconsistent with no standard
apply (Lindgren and Hendeberg, 2009; Waagstein, 2011). These firms are also generally not dividend payers
and in the growth stage of their life cycle.

This research examines the relationship between CSR expenses and corporate life cycle as well as dividend
policy using a large sample of 527 Indonesian listed firms and 923 firm-year observations between 2008 and
2015. This study provides strong evidence for the first hypothesis, through multivariate setting and various
models, and suggest that larger and more profitable firms tend to invest more in CSR. It also provides enough
evidence that higher CSR expenses are positively and significantly related with greater retained earnings.
Overall, the results indicate that CSR increase when firms enter the maturity stage of their life cycle.

On the triple bottom line components of CSR, the research results suggest that firms which invest on CSR
economic must be very large with an ability to generate more cash internally than profitably invested, indicating
that these firms are in their maturity stage of their life cycle (Fama and French, 2001; Rakotomavo, 2012). The
evidence also suggests that firms’ social donation and charitable giving increase as firms become mature.
However, this study finds insignificant relationship between CSR environment and all control variables. It
supposes that the insignificant result of CSR_ENV is due to the small number of observations on CSR_ENV
and a large number of companies in Indonesia that more focus to spend on CSR_SOC to increase their
reputation (Shauki, 2011; Tjiptono and Arli, 2014). In addition, similar with Nainggolan et al. (2017), the
research results provide evidence that Indonesia’s state-owned companies have clearly implemented their CSR
activities and report it on their annual and sustainability reports.

After using the control variables for determinants of dividend policy (Fama and French, 2001; DeAngelo et al.,
2006; Benlemlih, 2014) as well as year and industry effect, this study provides strong evidence for the
hypothesis stating that firms’ CSR expenses positively affect dividend policy. This result suggests that
Indonesian socially responsible firms do concern about the shareholder wealth though the dividend policy. The
findings of this study are robust to alternative measurement of dividend payout and additional firms’
characteristics, and after treating for potential endogeneity issue. However, this study finds insignificant results
for the effect of triple bottom line component of CSR on dividend policy. These results may due to the limitation
of this study which is the small number of observations of companies specify the types of the CSR expenses.

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Finally, subject to data availability, future research can consider to explore other dividend payout policy such as
stock splits, stock repurchase and stock dividend. Other CSR measurements also could be used and
considering other emerging countries/regions may check the consistency of the results. Moreover, as
companies in Indonesia are started to consider CSR as part of their business strategy, shown by the increase
number of CSR disclosure, future research can revisit Benlemlih (2014) and Rakotomavo (2012) using more
recent data.

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Further reading
Grullon, G., Michaely, R. and Swaminathan, B. (2002), “Are dividend changes a sign of firm maturity?”, The Journal of
Business, Vol. 75 No. 3, pp. 387-424. He, T.T., Li, W.X.B. and Tang, G.Y.N. (2012), “Dividends behavior in state – versus
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Appendix

Table AI Variable definitions

Variable Definition

LN_DIV Natural logarithm of cash dividend CSR_ALL Natural logarithm of overall CSR expenses
CSR_ECO Natural logarithm of overall CSR economic expenses CSR_SOC Natural logarithm of overall
CSR social expenses CSR_ENV Natural logarithm of overall CSR environmental expenses RE_TE Retained earnings
scaled by total equity RE_TA Retained earnings scaled by total asset TE_TA Total equity scaled by total asset SIZE Natural
logarithm of total assets (in Indonesian Rupiahs) Cash Cash and short term investment scaled by book value of total assets
Growth Logarithmic value of net sales growth Leverage Book value of total liabilities scaled by book value of total assets
ROA Net income scaled by the book value of total assets Lagged ROA One year lagged ROA BUMN A dummy variable that
is set to 1 if sample is a state-owned enterprise, and 0 otherwise

Corresponding author
Febi Trihermanto can be contacted at: febi.trihermanto@sbm-itb.ac.id

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