In this study, we focus on the role of dividend as a mediator between firm’s corporate social responsibility (CSR) performance and its market based financial performance measured by stock return. Many firms are giving back to society by engaging in CSR activities because it is believed to bring positive influences on their businesses. Investors also care about dividend as it reflects future growth prospects and the presence of dividend may affect investors’ point of view towards the firms. By having these meaningful influences among these three variables, this study wants to examine the mediation role of dividend in explaining the relationship between CSR and stock return. We are using sample of U.S listed companies who engage in CSR activities starting from year 2006 to 2015. The data on CSR performance was obtained from Thompson Reuters ESG ASSET4 database. Data for accounting variables was obtained from Compustat database while data for stock market prices was obtained from CRSP database. Our findings show that dividend fully mediates the relationship between CSR and stock return when firms have high dividend yield and partial mediation is shown in the case of low dividend yield stocks. In addition, CSR investment is worthy as it has positive significant relationship with stock return while the relationship between CSR and dividend is found to be significantly negative.

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