How Does Corporate Social Responsibility Change Capital Structure?

Abstract

How do creditors view the existence of the corporate social responsibility (CSR) strategy? Our investigation extend the effect of CSR on information asymmetric between firms and creditors. We use Chinese listed firms as samples, our paper adopts propensity score matching (PSM) to reconstruct the new samples for reporting CSR statement randomly assigned to firms. Then we use differences-in-differences approach to estimate our four hypotheses, as following: first, firms with CSR have larger leverage than firms without CSR. Second, CSR reduce the adjustment speed of capital structure, and above-leverage firms tend to slower speed than below-leverage firms. Third, CSR providing long-term prediction to creditors, so that firms with CSR can keep larger long-term leverage than firms without CSR. To summarize, based on causal inference, we consider that CSR can significantly reduce information asymmetric between firms and creditors.

Keywords: corporate social responsibility, capital structure, target leverage

JEL Classification: G15, G34, M14, M41