Does Corporate Social Responsibility Reduce the Costs of High Leverage? Evidence from Capital Structure and Product Market Interactions
61 Pages Posted: 27 Apr 2017 Last revised: 20 Jan 2019
Date Written: April 27, 2017
Research on capital structure and product market interactions shows that high leverage is associated with substantial losses in market share due to unfavorable actions by customers and competitors. We examine whether corporate social responsibility (CSR) affects firms’ interactions with customers and competitors, and whether it can reduce the costs of high leverage. We find that CSR reduces losses in market share when firms are highly leveraged. By reducing adverse behavior by customers and competitors, CSR helps highly leveraged firms keep customers and guard against rivals’ predation. Our results support the stakeholder value maximization view of CSR.
Keywords: Corporate social responsibility; Costs of high leverage; Stakeholder theory of capital structure
JEL Classification: G32, M14
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