Liquidity and CSR: a chicken and egg story

Abstract

Purpose Drawing on financial slack resources theory, stakeholder theory and signaling theory, the purpose of this study is to explore the two-way causality between liquidity and corporate social responsibility (CSR) by using the cash conversion cycle (CCC) as liquidity proxy and composite and individual CSR metrics. Design/methodology/approach The data were retrieved from the Thomson Reuters Eikon database covering the period between 2013 and 2019 and 20,016 firm-year observations affiliated with ten business sectors and 60 countries. The fixed-effects panel regression analysis is executed in the empirical part. Findings The results indicate that firms with greater liquidity proxied by shorter CCC engage with greater CSR initiatives. They also reveal that firms with greater liquidity proxied by CCC do not regard all the dimensions of environmental and social performance equivalently; they do discriminate them. In the environmental pillar, firms funnel their cash derived from shorter CCC toward eco-innovation and resource use, respectively, but not to emissions reduction. In the social pillar, higher liquidity fosters community and human rights dimensions, respectively, but not workforce and product quality. These outcomes are largely robust to alternative CSR measurement, alternative sampling and endogeneity concerns. The reverse causality confirmed that CSR promotes higher liquidity (shorter CCC). Thus, the bidirectional relationship between CSR and liquidity is confirmed. Research limitations/implications Although the authors wanted to consider a longer study period, they were obliged to choose 2013 as the starting period because particularly CCC data together with environmental, social and governance (ESG) data were not available in the earlier years. Practical implications Among environmental indicators, fueling eco-innovation most with greater liquidity shows that firms make a strategic choice for their long-term growth and legitimacy. Besides, greater liquidity induces greater community development and more respect for human rights rather than investing in workforce and product quality. Although this might be an outcome of the realization of a deliberate strategy and good for the society, not investing in the workforce and product quality may impair the long-term survival and competitive position of the firm in the long-run in the marketplace. The implication of reverse causality is that customers purchase products and services of firms that do good for the ecology and the community and they pay faster to those companies. Social implications This study highlights that liquidity management and CSR are closely interrelated confirming a chicken and egg story. Firms with better liquidity management are more likely to care environment and community. Besides, doing good for society pays back in the form of enhanced firm liquidity triggering customer sympathy. Originality/value This research provides new insight by examining the two-way causality of the relationship between CSR performance and liquidity, which helps highlight the impact of CSR performance on the company’s ability to manage its cash and the benefits of having high liquidity on enhancing the company’s concern about the society and environment.

Board gender diversity and corporate carbon commitment: Does industry matter?

“…Likewise, in sync with the conjecture that a firm's creditors, as one of the stakeholders of the firm, would pressure the firm into engaging in higher levels of commitment to the climate cause (Caby et al, 2020), we find that the leverage ratio ( LEVER) variable is positively associated (significant at the 1% level) with the carbon commitment ( C_COMIT) variable. Corroborating the view that more liquid firms would have slack financial resources to act on environmental issues (Uyar et al, 2022), we observe that firm‐level liquid ( LIQUID ) variable loads positively (significant at the 5% level) on corporate carbon commitment ( C_COMIT ). In line with the argument that the intensity of media's attention to a firm ( MEDIA ) would induce the firm into committing to the climate change cause (Tavakolifar et al, 2021), we observe a positive correlation (significant at the 1% level) between our MEDIA and C_COMIT variables.…”

“…To avoid model misspecification, we control the impact of control variables that have been shown to have impact on corporate carbon commitment in previous studies. Both Littlewood et al (2018) and Boiral et al (2012) consider the size of a firm ( F_SIZE ), firm‐level profitability ( F_PRFT ), liquidity of a firm ( F_LIQUID ), firm‐level growth opportunities ( F_GROW ), the volatility of a firm's earnings ( E_VOLT ), and a firm's access to finance ( LEVER ) as proxies for business, stakeholder, and sustainability pressures (see also Bose et al, 2018; Caby et al, 2020; Hussain et al, 2018; Putra et al, 2022; Uyar et al, 2022). Thus, we include these firm characteristics in our models so that we could isolate the impact of board gender diversity on corporate commitment to climate change.…”

Emission targeting and carbon emissions: The moderating effect of female directors

“…Larger firms are typically scrutinized more by environmentalists and the public (Agarwala et al, 2023). High‐leverage firms, more liquid firms, and firms with greater amounts of cash and cash flow have greater financial resources to deploy for carbon management (Uyar, Abdelqader, & Kuzey, 2023). Furthermore, dividend‐paying firms are likely to better engage with carbon management not to create a conflict between investing and noninvesting stakeholders (Lakhal et al, 2023), and investing firms are less likely to invest in environmental issues, including carbon management (Uyar, Lodh, et al, 2023).…”

The power of culture: Does Confucian culture contribute to corporate environmental information disclosure?

“…Based on previous studies (Bae et al, 2018; Tang et al, 2022; Uyar et al, 2022; Yan et al, 2021), the control variables include firm size, financial leverage, asset turnover, cash liquidity, firm growth, independent directors, dual role, ownership, and management shareholding. Firm size is measured using the natural logarithm of total assets.…”