The study examines the effect of corporate social responsibility (CSR) activities on financial constraints by using a balanced panel dataset of 1,496 firms listed on the National Stock Exchange (NSE) in India from 2014 to 2020. It employs a generalized method of moments (GMM) two-step estimator method to analyze the data. GMM analysis is efficient in dealing with the endogeneity issues among firm-level variables. The robustness checks are conducted by the three-step least square (3SLS) regression method to confirm the consistency of results. Whited and Wu index (2006) and the debt-to-asset ratio have been used to classify the firms into financially constrained and unconstrained firms. We find that financially constrained find it difficult to engage in CSR activities. However, CSR spending can help in reducing financial constraints for firms. CSR activities are associated with stakeholder engagement that reduces the likelihood of opportunistic behaviour of managers. Further, stakeholder engagements help firms to enhance their value through their relationship with customers, employees and other stakeholders. The study also finds that corporate governance alleviates financial constraints, implying that firms are becoming more accountable and transparent in disclosing CSR activities. Finally, it confirms that firms engaging in CSR activities face lower financial constraints. The study focuses on the Indian-listed firms only which can be extended to private firms in future research.
ArtiachT., LeeD., NelsonD., & WalkerJ. (2010). The determinants of corporate sustainability performance. Accounting & Finance, 50(1), 31–51.
2.
AslamE., KalimR., & FizzaS. (2019). Do cash holding and corporate governance structure matter for the performance of firms? Evidence from KMI 30- and KSE 100-indexed firms in Pakistan. Global Business Review, 20(2), 313–330.
3.
BhaduriS. N., & SelarkaE. (2016). Corporate governance and corporate social responsibility of Indian companies. Springer.
4.
BondS., & MeghirC. (1994). Dynamic investment models and the firm’s financial policy. The Review of Economic Studies, 61(2), 197–222. https://doi.org/10.2307/2297978
5.
CaixeD. F. (2022). Corporate governance and investment sensitivity to policy uncertainty in Brazil. Emerging Markets Review, 51, 100883. https://doi.org/10.1016/j.ememar.2021.100883
6.
CalomirisC., & HimmelbergC. (1995). Investment, banking costs as a measure of access to external finance.
7.
ChanC. Y., ChouD. W., & LoH. C. (2017). Do financial constraints matter when firms engage in CSR?. The North American Journal of Economics and Finance, 39, 241–259.
8.
ChengB., IoannouI., & SerafeimG. (2014). Corporate social responsibility and access to finance. Strategic Management Journal, 35(1), 1–23.
9.
Enterprise Surveys(Barnea & Rubin, 2010), The World Bank. https://www.enterprisesurveys.org/en/enterprisesurveys
10.
FazzariS. M., HubbardR. G., PetersenB. C., BlinderA. S., & PoterbaJ. M. (1988). Financing constraints and corporate investment. Brookings Papers on Economic Activity, 1988(1), 141–206.
11.
FreemanR. E. (1984). Strategic management: A stakeholder approach (Vol. 1). Pitman.
12.
FreemanR. E. (2010). Strategic management: A stakeholder approach. Cambridge University Press.
13.
GamerschlagR., MöllerK., & VerbeetenF. (2011). Determinants of voluntary CSR disclosure: empirical evidence from Germany. Review of Managerial Science, 5(2–3), 233–262.
14.
Global Indicators Department, Enterprise Analysis Unit (World Bank). (n.d.). Enterprise Survey2014[Data set]. World Bank, Development Data Group. https://doi.org/10.48529/KQGV-2V89
15.
GodfreyP. C. (2005). The relationship between corporate philanthropy and shareholder wealth: A risk management perspective. Academy of Management Review, 30(4), 777–798.
16.
GossA., & RobertsG. (2007). Corporate social responsibility and the cost of debt financing. Financial Management Association.
17.
GötzM. (2018). Financial constraints and corporate environmental responsibility(SAFE Working Paper No. 241).
18.
HaqueS., & FarooqiR. M. (2017). Current trends of CSR practices in Indian firms. IPE Journal of Management, 7(1), 127–137.
19.
HealG. (2005). Corporate social responsibility: An economic and financial framework. The Geneva Papers on Risk and Insurance-Issues and Practice, 30(3), 387–409.
20.
HoH., KimN., & RezaS. (2022). CSR and CEO pay: Does CEO reputation matter?. Journal of Business Research, 149, 1034–1049.
21.
HongH. G., KubikJ. D., & ScheinkmanJ. (2012). Financial constraints on corporate goodness(SSRN Scholarly Paper No. 1734164).
22.
JensenM. C., & MecklingW. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360. https://doi.org/10.1016/0304-405X(76)90026-X
23.
KaplanS. N., & ZingalesL. (1997). Do investment-cash flow sensitivities provide useful measures of financing constraints?. The Quarterly Journal of Economics, 112(1), 169–215.
24.
KnopfJ., KahlenbornW., HajdukT., WeissD., FiedlerR., FeilM., & KleinJ. (2011). Corporate social responsibility: National public policies in the European Union (p. 72). European Commission, Directorate-General for Employment, Social Affairs and Inclusion.
25.
KumarS., & RanjaniK. S. (2018). Financial constraints and investment decisions of listed Indian manufacturing firms. Financial Innovation, 4(1), 6.
26.
LeongC. K., & YangY. C. (2021). Constraints on “Doing Good”: Financial constraints and corporate social responsibility. Finance Research Letters, 40, 101694.
27.
LiaoL., LinT. P., & ZhangY. (2018). Corporate board and corporate social responsibility assurance: Evidence from China. Journal of Business Ethics, 150(1), 211–225.
28.
MellahiK., FrynasJ. G., SunP., & SiegelD. (2016). A review of the nonmarket strategy literature: Toward a multi-theoretical integration. Journal of Management, 42(1), 143–173.
29.
MoussaF. B. (2019). The influence of internal corporate governance on bank credit risk: An empirical analysis for Tunisia. Global Business Review, 20(3), 640–667.
30.
MyersS. C., & MajlufN. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 13(2), 187–221.
31.
PadgettR. C., & GalanJ. I. (2010). The effect of R&D intensity on corporate social responsibility. Journal of Business Ethics, 93(3), 407–418.
32.
RaithathaM., & ShawT. S. (2022). Firm’s tax aggressiveness under mandatory CSR regime: Evidence after mandatory CSR regulation of India. International Review of Finance, 22(1), 286–294.
33.
ReverteC. (2009). Determinants of corporate social responsibility disclosure ratings by Spanish listed firms. Journal of Business Ethics, 88(2), 351–366.
34.
RoyP. P., RaoS., & ZhuM. (2022). Mandatory CSR expenditure and stock market liquidity. Journal of Corporate Finance, 72, 102158.
35.
SchallerH. (1993). Asymmetric information, liquidity constraints, and Canadian investment. Canadian Journal of Economics, 26, 552–574.
36.
ShinH. H., & KimY. H. (2002). Agency costs and efficiency of business capital investment: evidence from quarterly capital expenditures. Journal of Corporate Finance, 8(2), 139–158.
37.
SundarasenS. D. D., Je-YenT., & RajangamN. (2016). Board composition and corporate social responsibility in an emerging market. Corporate Governance: The International Journal of Business in Society, 16, 35–53.
38.
VilliersC., NaikerV., & Van StadenC. (2011). The effect of board characteristics on firm environmental performance. Journal of Management - J MANAGE, 37, 1636–1663. https://doi.org/10.1177/0149206311411506
39.
WhitedT. M., & WuG. (2006). Financial constraints risk. The Review of Financial Studies, 19(2), 531–559.
40.
WoolridgeJ. M. (2002). Introductory econometrics: A modern approach, 4. izdaja. Cincinnati: Thomson South- Western.
41.
ZhaoT., & XiaoX. (2019). The impact of corporate social responsibility on financial constraints: Does the life cycle stage of a firm matter?International Review of Economics & Finance, 63, 76–93.
