Corporate social responsibility and degrees of operating and financial leverage

Maretno Agus Harjoto ()
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Maretno Agus Harjoto: Pepperdine University

Review of Quantitative Finance and Accounting, 2017, vol. 49, issue 2, No 8, 487-513

Abstract: Abstract We examine the relationship between corporate social responsibility (CSR) and firms’ degrees of operating (DOL) and financial leverage (DFL). Combining the enlightened value maximizing and capital structure theories, we hypothesize that CSR as firms’ strategic choice to internalize the cost from implicit contracts between the firms and their non-investing stakeholders affects firms’ operating and financial leverage. We find empirical evidence that CSR and CSR strengths are positively (negatively) related to firms’ DOL (DFL). CSR concerns are positively related firms’ DOL and DFL. We also document that CSR is positively related to firms’ operating cost and we find evidence that CSR acts as a substitute for corporate debt tax shield when firms’ financial leverage is low.

Keywords: Operating leverage; Financial leverage; Corporate social responsibility; Enlightened value maximizing; Capital structure (search for similar items in EconPapers)
JEL-codes: D20 D24 G32 M14 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (31)

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DOI: 10.1007/s11156-016-0598-5

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