We investigate how the existing level of shareholder-stakeholder conflict affects CSR performance. Using dividend payout as a proxy for the conflict, we find that dividend paying firms exhibit a better CSR performance than non-paying firms. Using the adoption of state-level constituency statutes as an exogenous shock to stakeholder importance, we find an increase in CSR performance after CS adoptions for dividend paying firms, suggesting that the positive CSR-dividend relation is driven by firms’ incentives to mitigate the tension between shareholders and stakeholders. In addition, the enhancement effect of CS adoption on the positive CSR-dividend relation is more pronounced when the management team is friendlier to CSR. Overall, our paper uncovers that the trade-off between the interests of shareholders and stakeholders is one important factor in CSR performance and offers a new explanation for the positive CSR-dividend relation.

Keywords: Corporate Social Responsibility; Constituency Statutes; Shareholder-Stakeholder Conflict; Dividend Payout
JEL classification: M4, M14, G14, G38