Abstract
Socially responsible firms receive more finance and have been well researched in the corporate finance literature. In this paper, we examine the relationship between CSR and trade credit. Using data from the US manufacturing industry, we find that CSR has a significant positive association with the buyer and supplier sides of trade credit. During the 2008–2009 financial crisis, the manufacturing industry trade badly fell. We also argue and find evidence that, during crisis, CSR is negatively associated with trade credit. These findings are robust for alternate proxies of CSR and trade credit, sample selection, and time period. Moreover, the potential endogeneity concerns do not affect our results. Finally, we show that this relationship exists for both domestic and multinational firms’ subsamples. Overall, our results indicate that firms with high social performance use more trade credit to increase their business activity.
Highlights
Corporate social responsibility (CSR) has gained vital importance in the last few decades
account receivables/total sales (AR) is the ratio of total receivables to total sales; accounts payables/sales (AP) is the ratio of total payables to total sales; CSR is calculated as total strengths minus total concerns; return on assets (ROA) is the ratio of net income divided by total assets; Size is the natural logarithm of total sales in USD millions; Debt/assets is the ratio of long-term debt to total assets; Fixed asset/assets is the total of property plant and equipment scaled by total assets; Age is the years of experience in year t; Sales growth is the percentage change in the total sales from the year t-1 to t; Sales/assets is the ratio of total sales scaled by total assets; CGS/assets is the ratio of cost of goods sold to total assets
CSR is calculated as total strengths minus total concerns; ROA is the ratio of net income divided by total assets; Size is the natural logarithm of total sales in $US millions; Debt/assets is the ratio of long-term debt to total assets; Fixed asset/assets is the total of property plant and equipment scaled by total assets; Age is the years of experience in year t; Sales growth is the percentage change in the total sales from the year t-1 to t; Sales/assets is the ratio of total sales scaled by total assets; CGS/assets is the ratio of cost of goods sold to total assets
Summary
Corporate social responsibility (CSR) has gained vital importance in the last few decades. CSR shows a negative relationship with both the buyer and supplier sides of trade credit, but coefficients of the domestic sample are almost double in comparison to MNCs, because domestic firms cannot diversify their systematic risk and MNCs diversify their systematic risk through business expansion in less affected countries. We contribute to the literature of crisis (Lin and Chou 2015) and its effect on the trade credit behavior of firms (Bliss et al 2015) This empirical evidence offers some policy implications for financial management. Firms can reduce their investment in CSR activities during crisis or increase their foreign sales to improve trade credit during crisis This evidence supports the management decision to invest in socially responsible activities.
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