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Mandatory CSR expenditure and stock market liquidity

Mandatory CSR expenditure and stock market liquidity
Mandatory CSR expenditure and stock market liquidity
We investigate the nexus between corporate social responsibility (CSR) and firms' stock market liquidity. Using actual firm-level CSR expenditure data and a quasi-natural experiment setup of a mandated CSR regulation in India, we find that firms complying with the mandate experience significantly higher stock market liquidity, relative to non-CSR firms in the post-CSR mandate period. This effect seems to be more pronounced among CSR firms not affiliated to business groups, with concentrated promoter ownership, with low institutional ownership, with foreign sales and having operations in multiple locations. Further, we find that firms spending more on education and healthcare projects as part of their mandatory CSR engagement have higher stock market liquidity. Our results are in line with the conjecture that mandatory CSR regulation could lead to reduced information asymmetry and improved social and reputational capital, and thus improve the stock market liquidity of CSR firms. Finally, we show that mandated CSR firms, having superior stock market liquidity, obtain higher market valuations in the long run.
CSR, stock market liquidity, mandatory CSR law, social capital, ESG
0929-1199
Roy, Partha P.
8d91f779-7984-4da3-a6b7-0fb44d132d0a
Rao, Sandeep
8473bf53-1177-4fe1-926f-c0afd5492696
Zhu, Min
bf739d74-b741-404c-bae1-650de5fa2056
Roy, Partha P.
8d91f779-7984-4da3-a6b7-0fb44d132d0a
Rao, Sandeep
8473bf53-1177-4fe1-926f-c0afd5492696
Zhu, Min
bf739d74-b741-404c-bae1-650de5fa2056

Roy, Partha P., Rao, Sandeep and Zhu, Min (2022) Mandatory CSR expenditure and stock market liquidity. Journal of Corporate Finance, 72, [102158]. (doi:10.1016/j.jcorpfin.2022.102158).

Record type: Article

Abstract

We investigate the nexus between corporate social responsibility (CSR) and firms' stock market liquidity. Using actual firm-level CSR expenditure data and a quasi-natural experiment setup of a mandated CSR regulation in India, we find that firms complying with the mandate experience significantly higher stock market liquidity, relative to non-CSR firms in the post-CSR mandate period. This effect seems to be more pronounced among CSR firms not affiliated to business groups, with concentrated promoter ownership, with low institutional ownership, with foreign sales and having operations in multiple locations. Further, we find that firms spending more on education and healthcare projects as part of their mandatory CSR engagement have higher stock market liquidity. Our results are in line with the conjecture that mandatory CSR regulation could lead to reduced information asymmetry and improved social and reputational capital, and thus improve the stock market liquidity of CSR firms. Finally, we show that mandated CSR firms, having superior stock market liquidity, obtain higher market valuations in the long run.

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Accepted/In Press date: 3 January 2022
e-pub ahead of print date: 11 January 2022
Published date: 19 January 2022
Keywords: CSR, stock market liquidity, mandatory CSR law, social capital, ESG

Identifiers

Local EPrints ID: 476597
URI: http://eprints.soton.ac.uk/id/eprint/476597
ISSN: 0929-1199
PURE UUID: 7d3cbd1f-553d-48f0-be91-c84c72c54736
ORCID for Partha P. Roy: ORCID iD orcid.org/0000-0001-8862-9476

Catalogue record

Date deposited: 09 May 2023 17:06
Last modified: 17 Mar 2024 04:20

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Contributors

Author: Partha P. Roy ORCID iD
Author: Sandeep Rao
Author: Min Zhu

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