Abstract
Reserve financial flexibility relates to the long-term development of enterprises. Enterprise managers pay more and more attention to the financial flexibility of reserves, which, however, will cause problems such as insufficient investment and inefficient use of funds. This paper collects data from the listed companies in the Shanghai and Shenzhen Stock Exchanges from 2009 to 2017. Our main results include the following. First, corporate social responsibility has a certain substitution effect on financial flexibility. Second, after excluding state-owned enterprises and politically-linked enterprises, there is a stronger substitution effect between social responsibility and financial flexibility for private enterprises without political connections. Third, the substitution effect between social responsibility and financial flexibility is stronger in companies with high environmental uncertainty and financing constraints. Furthermore, using a 2SLS procedure, we have verified that the substitution effect between social responsibility and financial flexibility is robust.
Highlights
Financial flexibility refers to the ability of a corporation to acquire financial resources in a timely manner in order to prevent or take advantage of uncertain events, seize valuable investment opportunities [1], and maximize enterprise valuation [2]
In the low corporate social responsibility (CSR) group, the CSR regression coefficient value in m4 is −0.0767 (p < 5%) less than the m5, but the CSR regression coefficient value in m7 is −0.0552 (p < 5%) greater than the m8 in the high CSR group. It shows that the substitution effect of CSR on financial flexibility is more reflected in the impact on corporate liabilities
Previous studies focused on the impact of CSR on corporate cash holdings and financing capacity from the perspectives of environmental uncertainty, financing costs, and corporate performance
Summary
Financial flexibility refers to the ability of a corporation to acquire financial resources in a timely manner in order to prevent or take advantage of uncertain events, seize valuable investment opportunities [1], and maximize enterprise valuation [2]. Enterprises need to reserve certain financial flexibility to prevent potential threats to their sustainable development and at the same time to improve their legitimacy by actively fulfilling social responsibilities and establishing competitive advantages. DeAngelo [2] provides the first research to systematically explain how corporations obtain financial flexibility, and to propose that the acquisition of financial flexibility should be examined and analyzed from three aspects: cash flexibility, debt flexibility, and equity flexibility. There has been a lack of research on the impact of CSR on financial flexibility, but some studies have explored the impact of CSR on cash holdings and debt levels. Under high environmental uncertainty and more severe financing constraints, the substitution effect between CSR and financial flexible reserves is more pronounced. The potential limitations of this paper and future research directions are proposed
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