HOW DOES CSR STRATEGY IMPACT CORPORATE CASH POLICY IN EMERGING MARKETS? EVIDENCE FROM THE COVID-19 OUTBREAK

##plugins.themes.academic_pro.article.sidebar##

Published May 4, 2024
https://doi.org/10.21098/jcli.v3i2.181


Download
PDF
Statistic

Downloads

Download data is not yet available.
Vol. 3 No. 2 (2024)

##plugins.themes.academic_pro.article.main##

Ali Yavuz Polat
Abdullah Gul University
Hasan Tekin

Abstract

This study investigates the impact of corporate social responsibility (CSR) strategy on corporate cash policy in emerging markets, with a specific focus on the COVID-19 pandemic period. By analysing data from 7,731 firm-years across 30 developing countries during the period 2002-2021, the study finds that CSR has a negative effect on cash holdings. In other words, firms with lower CSR investment tend to hold more cash. However, an interesting finding is that the negative impact of CSR on cash holdings lost its significance during the COVID-19
pandemic. This suggests that during this unprecedented period of economic uncertainty and disruption caused by the pandemic, firms with higher CSR were more inclined to hoard cash as a precautionary measure. In contrast, in normal times, the dominant motive for holding cash appears to be related to agency concerns. Furthermore, the study identifies countryspecific variations in the relationship between CSR and cash holdings. For instance, firms in Brazil and Saudi Arabia tend to use cash retention as a response to higher CSR, while firms in Argentina, Malaysia, Mexico, Poland, Taiwan, and Turkiye exhibit the opposite behaviour, using higher CSR as a signal for reduced cash holdings. Additionally, the study sheds light on industry-specific differences in the relationship between CSR and cash holdings. Beverage, construction and material, industrial material, oil, gas, and coal, technology hardware and equipment, telecommunications service provider, and travel and leisure firms are more likely to use cash holdings as a substitute for CSR, while alternative energy and media firms show the opposite pattern, using higher CSR as a signal for reduced cash holdings.

Keywords: Cash holdings, Corporate social responsibility, Developing, Pandemic, Sustainability

##plugins.themes.academic_pro.article.details##

References

  1. Albuquerque, Rui, Yrjö Koskinen, and Chendi Zhang. “Corporate Social Responsibility and Firm Risk: Theory and Empirical Evidence.” Management Science 65, no. 10 (2019): 4451–69. https://doi.org/10.1287/mnsc.2018.3043.
  2. An, Zhe, Wenlian Gao, Donghui Li, and Dezhu Ye. “Dividend Payouts, CashFlow Uncertainty and the Role of Institutions.” Journal of Business Finance and Accounting 49, no. 7–8 (2022): 1356–90. https://doi.org/10.1111/jbfa.12595.
  3. Atif, Muhammad, Benjamin Liu, and Sivathaasan Nadarajah. “The Effect of Corporate Environmental, Social and Governance Disclosure on Cash Holdings: Life-Cycle Perspective.” Business Strategy and the Environment 31,
  4. no. 5 (2022): 2193–2212. https://doi.org/10.1002/bse.3016.
  5. Bae, Kee Hong, Sadok El Ghoul, Omrane Guedhami, Chuck C.Y. Kwok, and Ying Zheng. “Does Corporate Social Responsibility Reduce the Costs of High Leverage? Evidence from Capital Structure and Product Market Interactions.” Journal of Banking and Finance 100 (2019): 135–50. https://doi.org/10.1016/j.jbankfin.2018.11.007.
  6. Bassen, Alexander, Katrin Meyer, and Joachim Schlange. “The Influence of Corporate Responsibility on the Cost of Capital.” SSRN Electronic Journal, 2011. https://doi.org/10.2139/ssrn.984406.
  7. Bates, Thomas W., Kathleen M. Kahle, and René M. Stulz. “Why Do U.S. Firms Hold so Much More Cash than They Used To?” Journal of Finance 64, no. 5 (2009): 1985–2021. https://doi.org/10.1111/j.1540-6261.2009.01492.x.
  8. Benlemlih, Mohammed, Amama Shaukat, Yan Qiu, and Grzegorz Trojanowski. “Environmental and Social Disclosures and Firm Risk.” Journal of Business Ethics 152, no. 3 (2018): 613–26. https://doi.org/10.1007/s10551-0163285-5.
  9. Beurden, Pieter Van, and Tobias Gössling. “The Worth of Values - A Literature Review on the Relation between Corporate Social and Financial Performance.” Journal of Business Ethics 82, no. 2 (2008): 407–24. https://doi.org/10.1007/s10551-008-9894-x.
  10. Cheung, Adrian Wai Kong. “Corporate Social Responsibility and Corporate Cash Holdings.” Journal of Corporate Finance 37 (2016): 412–30. https://doi.org/10.1016/j.jcorpfin.2016.01.008.
  11. D’Amato, Antonio. “Capital Structure, Debt Maturity, and Financial Crisis: Empirical Evidence from SMEs.” Small Business Economics 55, no. 4 (2020): 919–41. https://doi.org/10.1007/s11187-019-00165-6.
  12. Dang, Viet Anh, Minjoo Kim, and Yongcheol Shin. “In Search of Robust Methods for Dynamic Panel Data Models in Empirical Corporate Finance.” Journal of Banking and Finance 53 (2015): 84–98. https://doi.org/10.1016/j.jbankfin.2014.12.009.
  13. Ding, Wenzhi, Ross Levine, Chen Lin, and Wensi Xie. “Corporate Immunity the COVID-19 Pandemic.” Journal of Financial Economics 141, no. 2 (2021): 802–30. https://doi.org/10.1016/j.jfineco.2021.03.005.
  14. Dittmar, Amy, Jan Mahrt-Smith, & Henri Servaes. “International Corporate Governance and Corporate Cash Holdings.” Journal of Financial and Quantitative Analysis, 38, no. 1 (2003), 111-133. https://doi.org/10.2307/4126766.
  15. Flannery, Mark J., and Kristine Watson Hankins. “Estimating Dynamic Panel Models in Corporate Finance.” Journal of Corporate Finance 19, no. 1 (2013): 1–19. https://doi.org/10.1016/j.jcorpfin.2012.09.004.
  16. Ghoul, Sadok El, Omrane Guedhami, Chuck C.Y. Kwok, and Dev R. Mishra. “Does Corporate Social Responsibility Affect the Cost of Capital?” Journal of Banking and Finance 35, no. 9 (2011): 2388–2406. https://doi.org/10.1016/j.jbankfin.2011.02.007.
  17. Goss, Allen, and Gordon S. Roberts. “The Impact of Corporate Social Responsibility on the Cost of Bank Loans.” Journal of Banking and Finance 35, no. 7 (2011): 1794–1810. https://doi.org/10.1016/j.jbankfin.2010.12.002.
  18. Guiso, Luigi, Paola Sapienza, and Luigi Zingales. “Trusting the Stock Market.” Journal of Finance 63, no. 6 (2008): 2557–2600. https://doi.org/10.1111/j.1540-6261.2008.01408.x.
  19. Huang, He, and Ye Ye. “Rethinking Capital Structure Decision and Corporate Social Responsibility in Response to COVID-19.” Accounting and Finance 61, no. 3 (2021): 4757–88. https://doi.org/10.1111/acfi.12740.
  20. Jensen, Michael C. “Agency Costs of Free Cash Flow , Corporate Finance , and Takeovers Author ( s ): Michael C . Jensen Source : The American Economic Review , Vol . 76 , No . 2 , Papers and Proceedings of the Ninety-Eighth Annual Meeting of the American Economic Association.” The American Economic Review 76, no. 2 (1986): 323–29.
  21. Lee, Jaeho, and Hakkon Kim. “Do Employee Relation Responsibility and Culture Matter for Firm Value? International Evidence.” Pacific Basin Finance Journal 40 (2016): 191–209. https://doi.org/10.1016/j.pacfin.2016.10.006.
  22. Lins, Karl V., Henri Servaes, and Ane Tamayo. “Social Capital, Trust, and Firm Performance: The Value of Corporate Social Responsibility during the Financial Crisis.” Journal of Finance 72, no. 4 (2017): 1785–1824. https://doi.org/10.1111/jofi.12505.
  23. Modigliani, Franco, and Merton H Miller. “The Cost of Capital, Corporation Finance and the Theory of Investment.” American Economic Review 48, no. 3 (1958): 261–97. https://doi.org/10.1257/aer.103.6.i.
  24. Opler, T., L. Pinkowitz, R. Stulz, and R. Williamson. “The Determinants and Implications of Corporate Cash Holdings.” Journal of Financial Economics 40, no. 5 (1999): 223–28.
  25. Polat, Ali Yavuz. “Investor Bias, Risk and Price Volatility.” Journal of Economic Studies 50, no. 7 (October 25, 2023): 1317–35. https://doi.org/10.1108/JES-04-2022-0211.
  26. Sassen, Remmer, Anne Kathrin Hinze, and Inga Hardeck. “Impact of ESG Factors on Firm Risk in Europe.” Journal of Business Economics 86, no. 8 (2016): 867–904. https://doi.org/10.1007/s11573-016-0819-3.
  27. Seifert, Bruce, and Halit Gonenc. “The Effects of Country and Firm-LevGovernance on Cash Management.” Journal of International Financial Markets, Institutions and Money 52 (2018): 1–16. https://doi.org/10.1016/j.intfin.2017.12.001.
  28. Servaes, Henri, and Ane Tamayo. “The Impact of Corporate Social Responsibility on Firm Value: The Role of Customer AwarenessManagement Science 59, no. 5 (2013): 1045–61. https://doi.org/10.1287/mnsc.1120.1630.
  29. Song, Kyojik Roy, and Youngjoo Lee. “Long-term Effects of a Financial Crisis: Evidence from Cash Holdings of East Asian Firms.” Journal of Financial and Quantitative Analysis, 47, no. 3 (2012): 617-641. https://doi.org/10.1017/S0022109012000142.
  30. Tekin, Hasan. “Does Corruption Matter for Corporate Payouts in the Covid Era? Evidence from Muslim Countries.” Buletin Ekonomi Moneter Dan Perbankan 26, no. 4 (2023): 617–36. https://doi.org/10.59091/24609196.1708.
  31. Tekin, Hasan. “How Optimal Cash Changed by the Global Financial Crisis? A Multi-Country Analysis.” Economics
  32. and Business Letters 9, no. 2 (June 1, 2020): 114–23. https://doi.org/10.17811/ebl.9.2.2020.114-123.
  33. Tekin, Hasan, and Huseyin Burgazoglu. “How Do Corporate Sustainability and Pandemic Affect Cash Holdings in Muslim Countries?” Journal of Islamic Monetary Economics and Finance 8, no. 4 (2022): 615–36. https://doi.org/10.21098/jimf.v8i4.1649.
  34. Tekin, Hasan, and Fatih Güçlü. “Environmental, Social, Governance Investing, COVID-19, and Corporate Performance in Muslim Countries.” Journal of Islamic Monetary Economics and Finance 9, no. 1 (2023): 107–32. https://doi. org/10.21098/jimf.v9i1.1592.
  35. Tekin, Hasan, and Ali Yavuz Polat. “Do Market Differences Matter on Dividend Policy?” Borsa Istanbul Review 21, no. 2 (June 1, 2021): 197–208. https://doi.org/10.1016/j.bir.2020.10.009.
  36. Tekin, Hasan, and Ali Yavuz Polat. “Is Leverage a Substitute or Outcome for Governance? Evidence from Financial Crises.” International Journal of Emerging Markets 18, no. 4 (March 21, 2023): 1007–30. https://doi.org/10.1108/IJOEM-03-2020-0297.
  37. Tekin, Hasan, and Ali Yavuz Polat. “Is Saving Vital? Evidence from the Financial Crisis.” Economics and Business Letters 9, no. 2 (June 1, 2020): 124–34. https://doi.org/10.17811/ebl.9.2.2020.124-134.
  38. Tekin, Hasan, Ali Yavuz Polat, Ahmet Faruk Aysan, and Erhan Muğaloğlu. “Cash Management, Governance, and the Global Financial Crisis: Evidence from Developing Asia.” Asian Economics Letters 2, no. 4 (August 15, 2021). https://doi.org/10.46557/001c.27135.
  39. Turk Ariss, Rima. “Legal Systems, Capital Structure, and Debt Maturity in Developing Countries.” Corporate Governance: An International Review 24, no. 2 (2016): 130–44. https://doi.org/10.1111/corg.12132.
Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.