This paper examines the effect of corporate social responsibility (CSR) activities of firms ontheir dividend policy. Managers of the firm should find the best combination of investment anddividend payout to maximize the firm value. Under financial constraint, decisions on investmentand on dividend payout are closely related, as firms who invest a lot could not pay enoughdividends and firms who increase dividends could miss the opportunity of investing on theprofitable project. Thus, managers should consider both of the future growth of the firm andthe profit sharing with shareholders by paying dividend. We focus on the dividend payout out of various financial decisions as it is directly related tothe shareholder wealth. While the requirements of CSR have been strengthened in the market,there is no scholarly agreement yet about the effect of CSR on the financial decision-makings. Therefore, the relation between the CSR and dividend payout would provide evidence of howCSR that accompanies large amount of cash outflow is related to the shareholder wealth. There are competing hypotheses of the relation between the CSR and dividends. Underfinancial constraint, if firms could decrease the uncertainty of future cash flow by investing onCSR, they would have less need to pay dividends to signal their firm value. If shareholdersacknowledge the benefits from the CSR, such as reducing risks and enhancing the businesssustainability and reputation of the firm, they would prefer investing on CSR to getting dividends. In this case, there would be substitute relation between the CSR and dividends. However, therecould be an opposite case. Managers who want to signal the intrinsic firm value to the marketby CSR would also want to pay dividends to maximize the signaling effect under informationasymmetry. As it takes long time to get visible results from investing on the CSR, CSR could be improperly used as an overinvestment of managers (Barnea and Robin, 2010). Thus, shareholderswould prefer dividends to lower the possible agency problem, and managers have incentive topay dividends as a bonding mechanism (La Porta et al., 2000). Therefore, there would becomplement relation between the CSR and dividends. This paper empirically investigates whichhypothesis is supported. The results of this paper are as follows: CSR of the firm has significant and positive effect onthe dividend payout. This implies complement relation between the two. Managers invest onthe CSR and pay dividends at the same time to maximize signaling effect and convey positiveinformation to the market, and to signal that the agency problem that may caused by CSR isprevented. Using environment management (EM) activities as a dependent variable, we getconsistent results. We separate the sample based on the level of corporate governance, and findthat the positive relation between the CSR and dividends is strongly observed in firms withweak corporate governance. It suggests that those firms need to pay more dividend as a bondingmechanism than those with strong corporate governance. When we separate the sample basedon the profitability (average ROA for the past three years), the positive relation between theCSR and dividends is observed only in profitable firms. Firms with high profits are able toinvest on the CSR and pay dividends at the same time.