A commitment to social responsibility is indispensable to the sustainable development of a firm, and corporate social responsibility (CSR) has become a key corporate evaluation indicator. CSR's economic consequences have long been a hot topic in academic research. The authors analyze the relationship between CSR and corporate capital structure and also investigate channels through which such links are transmitted.
Using CSR score (CSRS) data published by China's Hexun (hexun.com) from 2010 to 2018, the authors control some influencing variables of the nature and characteristics of enterprises and discover that CSR can effectively improve firm leverage using ordinary least square regression. In addition, the research results remain robust for other CSR proxies, different dimensions of CSR, alternative measures of leverage and endogenous testing.
The authors discover that CSR can significantly reduce firm leverage. In addition, the research results confirm that investor attention and liquidity are the main channels by which CSR effectively reduces leverage, and other influence channels are worthy of further exploration. After examining the substitution variables and endogenous characteristics of CSR, the results remain robust.
Regarding decision-making and governance within companies, the authors conclude that CSR reports not only announce the status of CSR activities to corporate stakeholders but also reveal information on corporate financial decisions. Considering the widespread agency problems in companies, management may take advantage of investor understanding of CSR reports and conceal real information or disclose false information. They distort investors' understanding of the financial policies of financial reports to achieve their self-interests. Hence, companies must reinforce their governance and construct comprehensive monitoring mechanisms for CSR disclosure to protect their investors, establish a strong corporate reputation and facilitate long-term development.
