Does Corporate Social Responsibility Reduce the Costs of High Leverage? Evidence from Capital Structure and Product Markets Interactions

53 Pages Posted: 27 Apr 2017

See all articles by Kee-Hong Bae

Kee-Hong Bae

York University - Schulich School of Business

Sadok El Ghoul

University of Alberta - Campus Saint-Jean

Omrane Guedhami

University of South Carolina - Moore School of Business

Chuck C.Y. Kwok

University of South Carolina - Darla Moore School of Business

Ying Zheng

Bryant University

Date Written: April 27, 2017

Abstract

Research on capital structure and product markets 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 reduces 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 rival 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

Suggested Citation

Bae, Kee-Hong and El Ghoul, Sadok and Guedhami, Omrane and Kwok, Chuck C.Y. and Zheng, Ying, Does Corporate Social Responsibility Reduce the Costs of High Leverage? Evidence from Capital Structure and Product Markets Interactions (April 27, 2017). Available at SSRN: https://ssrn.com/abstract=2959444 or http://dx.doi.org/10.2139/ssrn.2959444

Kee-Hong Bae (Contact Author)

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
416-736-2100 ext) 20248 (Phone)
416-736-5687 (Fax)

Sadok El Ghoul

University of Alberta - Campus Saint-Jean ( email )

Edmonton, Alberta T6G 2R3
Canada
780-465-8725 (Phone)
780-465-8760 (Fax)

Omrane Guedhami

University of South Carolina - Moore School of Business ( email )

Columbia, SC
United States

Chuck C.Y. Kwok

University of South Carolina - Darla Moore School of Business ( email )

1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States
803-777-3606 (Phone)
803-777-3609 (Fax)

Ying Zheng

Bryant University

1150 Douglas Pike
Smithfield, RI 02917
United States
8033189733 (Phone)

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