 Do financial constraints matter when firms engage in CSR?Chia-Ying Chan, De-Wai Chou and Huai-Chun Lo The North American Journal of Economics and Finance, 2017, vol. 39, issue C, 241-259 Abstract: Studies in corporate social responsibility find that financial performance (ROA and ROE) is associated with the corporate social performance (CSP). Margolis et al. (2007) observed that “the mechanisms connecting prior corporate financial performance (CFP) to subsequent CSP” is an important issue for further investigation. In this study, we examine whether different states of cash flow liquidity impact the extent of a firm’s corporate social responsibility (CSR) activities. If firms perform well in CSP, we assume they have greater cash flow liquidity as measured by the KZ index and Altman’s Z-score. We posit that firm engagement in CSR is negatively linked with financial constraint dummies, which are computed as above 20% on the KZ index, or an Altman’s Z-score below 1.81. In this study, we compute the ratio of CSR strengths to concerns for each firm, which allows us to assign a specific CSR ‘Focus’ for each sample firm. Based on data from MSCI ESG STATS ratings, all firms are divided into seven focuses: an Environment Focus (ENV), a Community (COM) Focus, an Employee (EMP) Focus, a Diversity (DIV) Focus, a Product (PRO) Focus, a Governance (CGOV) Focus and a Human Rights (HUM) Focus. Furthermore, a multiple logit regression is conducted based on these seven focuses to examine the impact of financial constraints/liquidity proxies on firms with different CSR focuses. Our results confirm a significant negative association between CSR activities and the degree of financial constraints/distress. Our finding confirms the view of Campbell (2007). For the CSR focuses, we find that in general firms facing financial constraints do not engage in any CSR activities, especially when the degree of financial constraints is assessed by the KZ index. Our findings are robust using various CSR measures and financial constraint measures, and potentially useful to market participants when making investment decisions. Our findings also provide greater understanding of the characteristics of CSR firms. Keywords: Corporate social responsibility; Financial constraints; KZ index; Altman Z-score (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:39:y:2017:i:c:p:241-259 DOI: 10.1016/j.najef.2016.10.009 Access Statistics for this article The North American Journal of Economics and Finance is currently edited by Hamid Beladi More articles in The North American Journal of Economics and Finance from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.