Corporate Social Responsibility and Operating Cash Flows Management: An Examination of Credit Market Incentives

53 Pages Posted: 22 Mar 2021

See all articles by Hyung Il Oh

Hyung Il Oh

College of Business, Korea Advanced Institute of Science and Technology (KAIST)

Hyunpyo Kim

Shippensburg University of Pennsylvania

Jeong-Bon Kim

City University of Hong Kong

Yong Gyu Lee

Seoul National University

Date Written: March 15, 2021

Abstract

This paper examines whether firms that engage in corporate social responsibility activities (CSR firms) manage reported cash flows from operations (CFO) when they have strong credit market incentives. We find that CSR firms near financial distress and those having a long-term credit rating near the investment/non-investment grade cutoff are more likely to inflate reported CFO, compared to all other firms. We also find evidence that CSR firms with these credit market incentives appear to resort mainly to classification rather than timing as a tool for managing CFO. Further, we find that the degree of CFO management performed by those CSR firms is more pronounced under weaker corporate governance. Overall, our findings suggest that CSR firms with stronger credit market incentives are more likely to manage CFO, and that such CFO management behavior is likely to be implemented at the expense of shareholders’ interest.

Keywords: corporate social responsibility, operating cash flows management, credit market incentives, corporate governance

JEL Classification: M14, M41

Suggested Citation

Oh, Hyung Il and Kim, Hyunpyo and Kim, Jeong-Bon and Lee, Yong Gyu, Corporate Social Responsibility and Operating Cash Flows Management: An Examination of Credit Market Incentives (March 15, 2021). Available at SSRN: https://ssrn.com/abstract=3805477 or http://dx.doi.org/10.2139/ssrn.3805477

Hyung Il Oh

College of Business, Korea Advanced Institute of Science and Technology (KAIST) ( email )

85 Hoegiro Dongdaemun-Gu
Seoul 02455
Korea, Republic of (South Korea)

Hyunpyo Kim

Shippensburg University of Pennsylvania ( email )

1871 Old Main Drive
Shippensburg, PA 17257
United States
7174404264 (Phone)

Jeong-Bon Kim

City University of Hong Kong ( email )

Department of Accountancy
83 Tat Chee Avenue
Kowloon Tong
Hong Kong
852-3442-7909 (Phone)

Yong Gyu Lee (Contact Author)

Seoul National University ( email )

Kwanak-gu
Seoul, 151-742
Korea, Republic of (South Korea)

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