CSR Expenditure and Stock Liquidity

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 and expending on CSR activities experience significantly higher stock market liquidity, relative to non-CSR firms in the post-CSR reform period. Further, we find that firms spending more on education and healthcare projects as part of their mandatory CSR engagement seem to have higher stock market liquidity. Finally, we show that mandated CSR firms, having superior stock market liquidity, obtain higher long-term market valuations.