Financing a Sustainable Future: The Diverging Effects of Equity and Credit Market Development on Corporate Social Responsibility

Mihail K. Miletkov () and Viktoriya Staneva ()
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Mihail K. Miletkov: University of New Hampshire
Viktoriya Staneva: University of New Hampshire

Journal of Business Ethics, 2025, vol. 201, issue 3, No 11, 735-757

Abstract: Abstract This study investigates the relation between equity and credit market development and Corporate Social Responsibility (CSR) across 61 countries during the period from 2002 to 2022. Using a fixed effects identification strategy based on the seminal work of Rajan and Zingales (1998), we find that industries more dependent on external finance exhibit significantly better (worse) CSR performance in countries with more developed equity (credit) markets. These results suggest that while equity market development can be a catalyst for promoting CSR and ultimately improving environmental and social outcomes in countries around the world, the development of credit markets can discourage CSR investments, especially in industries that are heavily dependent on external finance. Further analysis reveals that ethical and social considerations, in addition to purely financial ones, moderate the relation between financial market development and CSR. Our study provides insights into how financial market structures and institutions can be aligned with global sustainability goals and responsible corporate behavior.

Keywords: Financial development; Equity markets; Credit markets; External finance dependence; Corporate Social Responsibility; CSR; ESG (search for similar items in EconPapers)
JEL-codes: G15 M14 Q01 R11 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s10551-025-05967-1

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