FINANCIAL LEVERAGE AND SOCIAL PERFORMANCE.

Abstract

In this paper we argue that firms with high financial leverage will pay less attention to business areas associated with social performance. High leverage limits managers¿ ability to allocate resources to uses that may be seen as unproductive from a purely financial perspective. Investments associated with social performance frequently are hard to justify because of their uncertain payoffs. Using a large sample of firms over several years, we find that highly leveraged firms tend to have lower social performance ratings in employee and product areas.