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

Authors

Kee-Hong Bae, York University
Sadok El Ghoul, University of Alberta
Omrane Guedhami, University of South CarolinaFollow
Chuck C.Y. Kwok, University of South CarolinaFollow
Ying Zheng, Bryant UniversityFollow

Document Type

Article

Keywords

corporate social responsibility; costs of high leverage; stakeholder theory of capital structure

Identifier Data

https://dx.doi.org/10.2139/ssrn.2959444

Publisher

Elsevier

Abstract

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.