Does corporate social responsibility transparency mitigate corporate cash holdings?

Mohammad Hendijani Zadeh, Michel Magnan, Denis Cormier and Ahmad Hammami

International Journal of Managerial Finance, 2021, vol. 19, issue 1, 63-87

Abstract: Purpose - This article aims to explore whether a firm's corporate social responsibility (CSR) transparency alleviates a firm's cash holdings. Design/methodology/approach - CSR transparency ratings encompass both the quantity and the quality of CSR practices, as validated by Bloomberg. While based upon firm-specific disclosure, transparency ratings impound additional information gathered independently by Bloomberg and thus bridge the gap between CSR disclosure and CSR performance. The authors use ordinary least squares estimators, and the authors concentrate on a panel of S&P 500 index companies over the period of 2012–2018 to examine the effect of CSR transparency on corporate cash holdings. Findings - The authors document that a higher level of CSR transparency induces a lower level of corporate cash holdings. Additional results imply that this negative relationship is more pronounced for firms suffering from high information asymmetry, with low financial reporting quality and for those with weak governance. Further analyses document that higher CSR transparency can help firms to enjoy lower cost of debt and to be less financially constrained, enabling high CSR transparent firms to obtain external financing more easily and at a lower cost, thus lowering the need to hoard cash. Ultimately, the study findings suggest that CSR transparency increases the market value relevance of an additional dollar in cash holdings. Originality/value - The authors contribute to both research streams of CSR and corporate cash holdings as they provide evidence about the influence of CSR transparency as a monitoring and insurance-like mechanism on corporate cash holdings.

Keywords: Corporate social responsibility; Corporate cash holdings; Financial constraints; Environmental transparency; Social transparency (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijmfpp:ijmf-07-2021-0339

DOI: 10.1108/IJMF-07-2021-0339

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