Commitment to build trust by socially responsible firms: Evidence from cash holdings

Ching-Hung Chang, Sheng-Syan Chen, Yan-Shing Chen and Shu-Cing Peng

Journal of Corporate Finance, 2019, vol. 56, issue C, 364-387

Abstract: We show that socially responsible firms use cash as a commitment device to honor implicit commitments to stakeholders. Firms with better social performance hold higher cash balances, especially for firms with social performance related to stakeholders or requiring cash spending. This relation is also stronger for firms that benefit more from social performance, e.g., firms that face more competition in product and labor markets. Social performance related to stakeholders or requiring cash spending increases the marginal value of cash.

Keywords: Corporate social responsibility; Cash holdings; Stakeholder theory; Value of cash (search for similar items in EconPapers)
JEL-codes: G32 G34 M14 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:56:y:2019:i:c:p:364-387

DOI: 10.1016/j.jcorpfin.2019.03.004

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