nach oben

Review of Quantitative Finance and Accounting

Erschienen in:

07.03.2023 | Original Research

Does corporate social responsibility affect leverage adjustments?

verfasst von: Trung K. Do, Henry Hongren Huang, Te-Chien Lo

Erschienen in: Review of Quantitative Finance and Accounting | Ausgabe 4/2023

Einloggen

Aktivieren Sie unsere intelligente Suche, um passende Fachinhalte oder Patente zu finden.

search-config

KI-gestützte Suche

Aus

Abstract

This research outlines and tests two corporate social responsibility (CSR) views of the corporate leverage speed of adjustment (SOA). The first view (stakeholder value maximization) indicates that socially responsible firms commit to ethical behavior and provide reliable financial information, which is advantageous to access external financing, and thus these firms tend to gain faster leverage adjustments. The second view (overinvestment) predicts that if managers over-invest in CSR due to agency problems, CSR may raise external financing’s concerns and is related to slower leverage adjustments. Our findings strongly support the first view. We further find that the positive effect of CSR on SOA is more pronounced for firms with high information asymmetry, high financial constraints, and high adjustment costs. Taken together, this study generates important insight that CSR can reduce leverage adjustment costs stemming from information asymmetry, thereby leading to faster leverage SOA.

Vorheriger Artikel Asymmetric dynamic risk transmission between financial stress and monetary policy uncertainty: thinking in the post-covid-19 world

Nächster Artikel Advertising, product market competition and stock returns

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Nur mit Berechtigung zugänglich

KLD rates companies along seven dimensions of corporate social responsibility: community, diversity, employee relations, environment, human rights, product, and corporate governance.

We also report the impact of CSR on SOA controlling for corporate governance in the Internet Appendix (Table IA.2).

We do not report market leverage results in our main tests since recent studies document an upward bias of market SOA. Specifically, by decomposing the market SOA into a passive component related to the firm value growth rate and an active component associated with a firm’s net debt issuance or repurchase policies, Yin and Ritter (2019) argue that the high level of the estimated market SOA is due primarily to the passive component. The high variance of the market value growth rate, caused by changes in stock valuation, leads to downward bias on the coefficient of the lagged dependent variable (market SOA being biased upwards) in panel dataset regressions with firm fixed effects. Not only the market value speed of adjustment estimates is biased, but also the marginal effects of other explanatory variables on market leverage are biased (Yin and Ritter 2020). As presented in Table IA.5 in the Internet Appendix, our result still holds using market SOA.

Appendix A presents variable definitions and data sources.

The system GMM approach includes lagged levels and differences of the dependent variable and exogenous variables in the instrument set to address the problem of persistent regressors.

Over variable can be regarded as the control variable for the target leverage and financial needs, and Deficit can be regarded as the control variable for cash flows.

The definition of the CSR score in this article is described in Sect. 4.2

Titman (1984) argues that if customers of a firm assess its probability of liquidation, the firm will indirectly bear these liquidation costs ex ante since the price a customer is willing to pay for firm’s durable goods declines as the probability of the firm’s liquidation increases. Moreover, from the employee perspective, Maksimovic and Titman (1991) further argue that in order to avoid immediate bankruptcy, a highly leveraged firm in financial distress may have an incentive to cut costs related to employee benefits. Since rational employees recognize these incentives of the firm, they require higher wages for their labor, and this in turn decreases firm value. Hence, firms that place a higher value on their reputation for high-quality products and/or treat employees fairly should limit their use of debts.

The list of blue or red states is based on the electoral results obtained from the U.S. Electoral College, available at https://www.archives.gov/federal-register/electoral-college/historical.html.

The first-stage IV regression results are reported in Table IA.3 in the Internet Appendix.

Additionally, our results reported in the Internet Appendix (Table IA.2) show that the impact of CSR on SOA is robust to controlling for corporate governance, suggesting that the CSR effect comes from social objectives and stakeholders instead of governance components.

A clear example of industry-specific CSR is that industries with the closest ties to the consumer-base and the community (i.e. food retail) may disclose the most CSR information. Conversely, B-to-B industries report much less CSR information.

Aflatooni A, Khazaei M (2020) Informaiton asymmetry, leverage deviaiton and leverage adjustment speed. Asian J Bus Account 13(1):1–34CrossRef

An Z, Li D, Yu J (2015) Firm crash risk, information environment, and speed of leverage adjustment. J Corp Finan 31:132–151CrossRef

Attig N, El Ghoul S, Guedhami O, Suh J (2013) Corporate social responsibility and credit ratings. J Bus Ethics 117:679–694CrossRef

Bae K-H, Kang J-K, Wang J (2011) Employee treatment and firm leverage: a test of the stakeholder theory of capital structure. J Financ Econ 100:130–153CrossRef

Banerjee S, Dasgupta S, Kim Y (2008) Buyer–supplier relationships and the stakeholder theory of capital structure. J Financ 63:2507–2552CrossRef

Barnea A, Rubin A (2010) Corporate social responsibility as a conflict between shareholders. J Bus Ethics 97:71–86CrossRef

Ben-Nasr H, Ghouma H (2018) Employee welfare and stock price crash risk. J Corp Finan 48:700–725CrossRef

Bénabou R, Tirole J (2010) Individual and corporate social responsibility. Economica 77:1–19CrossRef

Blundell R, Bond S (1998) Initial conditions and moment restrictions in dynamic panel data models. J Econom 87:115–143CrossRef

Brisker ER, Wang W (2017) CEO’s inside debt and dynamics of capital structure. Financ Manage 46:655–685CrossRef

Brooks C, Oikonomou I (2018) The effects of environmental, social and governance disclosures and performance on firm value: a review of the literature in accounting and finance. Br Account Rev 50:1–15CrossRef

Brown S, Hillegeist SA (2007) How disclosure quality affects the level of information asymmetry. Rev Acc Stud 12:443–477CrossRef

Byoun S (2008) How and when do firms adjust their capital structures toward targets? J Financ 63:3069–3096CrossRef

Carroll AB (1979) A three-dimensional conceptual model of corporate performance. Acad Manag Rev 4:497–505CrossRef

Chakravarthy J, DeHaan E, Rajgopal S (2014) Reputation repair after a serious restatement. Account Rev 89:1329–1363CrossRef

Chang Y-K, Chou RK, Huang T-H (2014) Corporate governance and the dynamics of capital structure: new evidence. J Bank Finance 48:374–385CrossRef

Cheng B, Ioannou I, Serafeim G (2014) Corporate social responsibility and access to finance. Strateg Manag J 35:1–23CrossRef

Cheng I-H, Hong H, Shue K (2020) Do managers do good with other people's money? National Bureau of Economic Research

Cook DO, Tang T (2010) Macroeconomic conditions and capital structure adjustment speed. J Corp Finan 16:73–87CrossRef

Corwin SA, Schultz P (2012) A simple way to estimate bid-ask spreads from daily high and low prices. J Financ 67:719–760CrossRef

Cui J, Jo H, Na H (2018) Does corporate social responsibility affect information asymmetry? J Bus Ethics 148:549–572CrossRef

Dabic M, Colovic A, Lamotte O, Painter-Morland M, Brozovic S (2016) Industry-specific CSR: analysis of 20 years of research. Eur Bus Rev 28:250–273CrossRef

Deng X, Kang JK, Low BS (2013) Corporate social responsibility and stakeholder value maximization: evidence from mergers. J Financ Econ 110(1):87–109CrossRef

Dang TL, Dang VA, Moshirian F, Nguyen L, Zhang B (2019) News media coverage and corporate leverage adjustments. J Bank Finance 109:105666CrossRef

Dang VA, Kim M, Shin Y (2012) Asymmetric capital structure adjustments: new evidence from dynamic panel threshold models. J Empir Financ 19:465–482CrossRef

Dang VA, Kim M, Shin Y (2015) In search of robust methods for dynamic panel data models in empirical corporate finance. J Bank Finance 53:84–98CrossRef

Davidson RH, Dey A, Smith AJ (2019) CEO materialism and corporate social responsibility. Account Rev 94:101–126CrossRef

Davis AK, Guenther DA, Krull LK, Williams BM (2016) Do socially responsible firms pay more taxes? Account Rev 91:47–68CrossRef

Dhaliwal DS, Li OZ, Tsang A, Yang YG (2011) Voluntary nonfinancial disclosure and the cost of equity capital: the initiation of corporate social responsibility reporting. Account Rev 86:59–100CrossRef

Di Giuli A, Kostovetsky L (2014) Are red or blue companies more likely to go green? Politics and corporate social responsibility. J Financ Econ 111:158–180CrossRef

Do TK (2022) Corporate social responsibility and default risk: International evidence. Financ Res Lett 44:102063CrossRef

Do TK, Huang HH, Ouyang P (2022) Product market threats and leverage adjustments. J Bank Finance 135:106365CrossRef

El Ghoul S, Guedhami O, Kwok CC, Mishra DR (2011) Does corporate social responsibility affect the cost of capital? J Bank Finance 35:2388–2406CrossRef

Elsas R, Florysiak D (2011) Heterogeneity in the speed of adjustment toward target leverage. Int Rev Financ 11:181–211CrossRef

Elsas R, Florysiak D (2015) Dynamic capital structure adjustment and the impact of fractional dependent variables. J Financ Quant Anal 50:1105–1133CrossRef

Fama EF, French KR (1997) Industry costs of equity. J Financ Econ 43:153–193CrossRef

Fama EF, French KR (2002) Testing trade-off and pecking order predictions about dividends and debt. Rev Financ Stud 15:1–33CrossRef

Faulkender M, Flannery MJ, Hankins KW, Smith JM (2012) Cash flows and leverage adjustments. J Financ Econ 103:632–646CrossRef

Faulkender M, Petersen MA (2006) Does the source of capital affect capital structure? Rev Financ Stud 19:45–79CrossRef

Ferrell A, Liang H, Renneboog L (2016) Socially responsible firms. J Financ Econ 122:585–606CrossRef

Flammer C (2015a) Does corporate social responsibility lead to superior financial performance? A regression discontinuity approach. Manage Sci 61:2549–2568CrossRef

Flammer C (2015b) Does product market competition foster corporate social responsibility? Evidence from trade liberalization. Strateg Manag J 36:1469–1485CrossRef

Flannery MJ, Rangan KP (2006) Partial adjustment toward target capital structures. J Financ Econ 79:469–506CrossRef

Friedman M (1970) The social responsibility of business is to increase its profits. New York Times September 13, 122–126

Gelb DS, Strawser JA (2001) Corporate social responsibility and financial disclosures: an alternative explanation for increased disclosure. J Bus Ethics 33:1–13CrossRef

Goss A, Roberts GS (2011) The impact of corporate social responsibility on the cost of bank loans. J Bank Finance 35:1794–1810CrossRef

Halling M, Yu J, Zechner J (2016) Leverage dynamics over the business cycle. J Financ Econ 122:21–41CrossRef

Hasan I, Hoi C-K, Wu Q, Zhang H (2017a) Does social capital matter in corporate decisions? Evidence from corporate tax avoidance. J Account Res 55:629–668CrossRef

Hasan I, Hoi CK, Wu Q, Zhang H (2017b) Social capital and debt contracting: Evidence from bank loans and public bonds. J Financ Quant Anal 52:1017–1047CrossRef

Hemingway CA, Maclagan PW (2004) Managers’ personal values as drivers of corporate social responsibility. J Bus Ethics 50:33–44CrossRef

Hillman AJ, Keim GD (2001) Shareholder value, stakeholder management, and social issues: What’s the bottom line? Strateg Manag J 22:125–139CrossRef

Hoberg G, Maksimovic V (2015) Redefining financial constraints: a text-based analysis. Rev Financ Stud 28:1312–1352CrossRef

Ho L, Bai M, Lu Y, Qin Y (2021) The effect of corporate sustainability performance on leverage adjustments. The British Accounting Review (forthcoming)

Hoi CK, Wu Q, Zhang H (2018) Community social capital and corporate social responsibility. J Bus Ethics 152:647–665CrossRef

Hoi CK, Wu Q, Zhang H (2019) Does social capital mitigate agency problems? Evidence from Chief Executive Officer (CEO) compensation. J Financ Econ 133:498–519CrossRef

Huang P, Lu Y, Faff R (2021) Social trust and the speed of corporate leverage adjustment: evidence from around the globe. Account Financ 61:3261–3303CrossRef

Jalilvand A, Harris RS (1984) Corporate behavior in adjusting to capital structure and dividend targets: an econometric study. J Financ 39:127–145CrossRef

Jensen MC, Meckling WH (1976) Theory of the firm: managerial behavior, agency costs and ownership structure. J Financ Econ 3:305–360CrossRef

Jones TM (1995) Instrumental stakeholder theory: a synthesis of ethics and economics. Acad Manag Rev 20:404–437CrossRef

Kaplan SN, Zingales L (1997) Do investment-cash flow sensitivities provide useful measures of financing constraints? Q J Econ 112:169–215CrossRef

Kim Y, Li H, Li S (2014) Corporate social responsibility and stock price crash risk. J Bank Financ 43:1–13CrossRef

Kim JB, Li B, Liu Z (2018) Does social performance influence breadth of ownership? J Bus Financ Acc 45:1164–1194CrossRef

Kim Y, Park MS, Wier B (2012) Is earnings quality associated with corporate social responsibility? Account Rev 87:761–796CrossRef

Krüger P (2015) Corporate goodness and shareholder wealth. J Financ Econ 115:304–329CrossRef

Leary MT, Roberts MR (2005) Do firms rebalance their capital structures? J Financ 60:2575–2619CrossRef

Lee I, Lochhead S, Ritter J, Zhao Q (1996) The costs of raising capital. J Financ Res 19:59–74CrossRef

Lemmon ML, Roberts MR, Zender JF (2008) Back to the beginning: persistence and the cross-section of corporate capital structure. J Financ 63:1575–1608CrossRef

Liao LKC, Mukherjee T, Wang W (2015) Corporate governance and capital structure dynamics: an empirical study. J Financ Res 38:169–192CrossRef

Lins KV, Servaes H, Tamayo A (2017) Social capital, trust, and firm performance: the value of corporate social responsibility during the financial crisis. J Financ 72:1785–1824CrossRef

Lins KV, Volpin P, Wagner HF (2013) Does family control matter? International evidence from the 2008–2009 financial crisis. Rev Financ Stud 26:2583–2619CrossRef

Loudermilk MS (2007) Estimation of fractional dependent variables in dynamic panel data models with an application to firm dividend policy. J Bus Econ Stat 25:462–472CrossRef

Loughran T, McDonald B (2014) Measuring readability in financial disclosures. J Financ 69:1643–1671CrossRef

Luo X, Bhattacharya CB (2006) Corporate social responsibility, customer satisfaction, and market value. J Mark 70:1–18CrossRef

Maksimovic V, Titman S (1991) Financial policy and reputation for product quality. Rev Financ Stud 4:175–200CrossRef

Masulis RW, Reza SW (2015) Agency problems of corporate philanthropy. Rev Financ Stud 28:592–636CrossRef

Myers SC (1984) The capital structure puzzle. J Financ 39:574–592CrossRef

Myers SC, Majluf NS (1984) Corporate financing and investment decisions when firms have information that investors do not have. J Financ Econ 13:187–221CrossRef

Nofsinger JR, Sulaeman J, Varma A (2019) Institutional investors and corporate social responsibility. J Corp Finan 58:700–725CrossRef

Oikonomou I, Brooks C, Pavelin S (2014) The effects of corporate social performance on the cost of corporate debt and credit ratings. Financ Rev 49:49–75CrossRef

Öztekin Ö (2015) Capital structure decisions around the world: which factors are reliably important? J Financ Quant Anal 50:301–323CrossRef

Öztekin Ö, Flannery MJ (2012) Institutional determinants of capital structure adjustment speeds. J Financ Econ 103:88–112CrossRef

Pagan A (1984) Econometric issues in the analysis of regressions with generated regressors. Int Econ Rev 22:221–247CrossRef

Peloza J (2006) Using corporate social responsibility as insurance for financial performance. Calif Manage Rev 48:52–72CrossRef

Phillips R, Freeman RE, Wicks AC (2003) What stakeholder theory is not. Bus Ethics Q 13:479–502CrossRef

Rupasingha A, Goetz SJ, Freshwater D (2006) The production of social capital in US counties. J Socio-Econ 35:83–101CrossRef

Servaes H, Tamayo A (2013) The impact of corporate social responsibility on firm value: the role of customer awareness. Manage Sci 59:1045–1061CrossRef

Strebulaev IA (2007) Do tests of capital structure theory mean what they say? J Financ 62:1747–1787CrossRef

Strebulaev IA, Yang B (2013) The mystery of zero-leverage firms. J Financ Econ 109:1–23CrossRef

Titman S (1984) The effect of capital structure on a firm’s liquidation decision. J Financ Econ 13:137–151CrossRef

Waddock SA, Graves SB (1997) The corporate social performance-financial performance link. Strateg Manag J 18:303–319CrossRef

Warr RS, Elliott WB, Koëter-Kant J, Öztekin Ö (2012) Equity mispricing and leverage adjustment costs. J Financ Quant Anal 47:589–616CrossRef

Whited TM, Wu G (2006) Financial constraints risk. Rev Financ Stud 19:531–559CrossRef

Yin QE, Ritter JR (2020) The speed of adjustment to the target market value leverage is slower than you think. J Financ Quant Anal 55:1946–1977CrossRef

Titel: Does corporate social responsibility affect leverage adjustments?
verfasst von: Trung K. Do
Henry Hongren Huang
Te-Chien Lo
Publikationsdatum: 07.03.2023
Verlag: Springer US
Erschienen in: Review of Quantitative Finance and Accounting / Ausgabe 4/2023
Print ISSN: 0924-865X
Elektronische ISSN: 1573-7179
DOI: https://doi.org/10.1007/s11156-023-01141-8

Springer Professional

Abstract

Bitte loggen Sie sich ein, um Zugang zu Ihrer Lizenz zu erhalten.

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft+Technik"

Springer Professional "Wirtschaft"

Weitere Artikel der Ausgabe 4/2023

Corporate social responsibility and annual report reading difficulty

The impact of ESG risks on corporate value

Asymmetric dynamic risk transmission between financial stress and monetary policy uncertainty: thinking in the post-covid-19 world

When in Rome, do as the Romans do: loan syndication in a state-dominated market

Board overconfidence and M&A performance: evidence from the UK

Corporate communication and shareholder base retention: evidence from spin-offs