CSR Regulation and Working Capital Management: Evidence from a Quasi-Natural Experiment

Jadiyappa Nemiraja () and Chavda Mrunal ()
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Jadiyappa Nemiraja: Indian Institute of Management Kozhikode
Chavda Mrunal: Indian Institute of Management Raipur

No 573, Working papers from Indian Institute of Management Kozhikode

Abstract: This study examines the impact of CSR regulation on the working capital management of Indian firms using the 2% mandatory CSR spending regulation implemented in India in 2015 as a quasi-natural experiment setup. Using the cash conversion cycle (CC_Cycle) as a proxy to measure working capital management, we observe a positive impact of CSR regulation on CC_Cycle. Further, we show that this negative relationship is driven by the fact that the costly trade credit was replaced by cheaper debt from institutional sources. The results remain robust for various model specifications, estimators, and sample selection procedures. These results are consistent with the views of the financial access hypothesis, which suggests that CSR activities increase firms' access to finance from institutional sources, allowing firms to replace costly trade credits with cheaper institutional capital.

Keywords: CSR Regulation; Working Capital Management; quasi-natural experiment (search for similar items in EconPapers)
Pages: 24 pages
Date: 2023-03
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