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Corporate social responsibility transparency and trade credit financing

Mohammad Hendijani Zadeh (Department of Accounting, Sobey School of Business, Saint Mary’s University, Halifax, Canada)
Karen Naaman (Department of Accounting, The State University of New York (SUNY) at Plattsburgh, Plattsburgh, New York, USA)
Najib Sahyoun (Department of Accounting, Arthur J. Bauernfeind College of Business, Murray State University, Murray, Kentucky, USA)

International Journal of Accounting & Information Management

ISSN: 1834-7649

Article publication date: 14 December 2022

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Abstract

Purpose

This study aims to examine whether a company’s corporate social responsibility (CSR) transparency (reflected in two separate dimensions of social transparency and environmental transparency) affects a company’s dependence on expensive trade credit (TC) financing.

Design/methodology/approach

The authors use a panel of S&P 500 index companies between 2012 and 2019 and ordinary least squares estimators. Transparency ratings represented by Bloomberg scores capture both the quantity and quality of verified CSR practice information.

Findings

CSR transparency (CSRT) is negatively associated with a firm’s dependence on expensive TC financing. This study’s results continue to hold after a battery of robustness tests like substitute proxies for TC, use of two-stage least squares regression, industry-adjusted dependent variable, generalized linear model and bootstrapping approach. This association is stronger among companies with higher information asymmetry (IASY) and lower quality regarding governance and financial reporting. Further investigation indicates that potential channels through which CSRT mitigates a company’s reliance on TC financing are the cost of debt (CoD) and stock liquidity. This study’s findings suggest that transparent companies have a lower CoD and higher stock liquidity. This helps these companies to be more financially flexible and eventually less dependent on expensive TC financing.

Originality/value

By combining two separate research lines of TC and CSR, this study adds to both works of literature as it is the first (to the best of the authors’ knowledge) to present evidence of the effect of CSRT proxied by Bloomberg scores on a company’s reliance on TC (a real economic decision and financial policy). Additionally, this study documents the moderating effects of financial reporting quality, IASY and corporate governance on the relationship between CSRT and TC financing. In conclusion, this study provides empirical evidence regarding the potential mechanisms of CoD and stock liquidity, through which CSRT influences a company’s reliance on TC financing.

Keywords

Acknowledgements

Funding statement: Mohammad Hendijani Zadeh acknowledges funding from New Brunswick Innovation Foundation – Start-up Fund Grant. Mohammad Hendijani Zadeh also acknowledges funding from the Social Sciences and Humanities Research Council of Canada. The initial part of this project was done when Dr Zadeh was a PhD candidate at John Molson School of Business, Concordia University.

Data availability statement: All data are publicly available from sources identified in the text.

Conflict of interest disclosure: The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.

Ethics approval statement: The manuscript does not contain human studies. This manuscript has not been published elsewhere.

Citation

Hendijani Zadeh, M., Naaman, K. and Sahyoun, N. (2022), "Corporate social responsibility transparency and trade credit financing", International Journal of Accounting & Information Management, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IJAIM-05-2022-0099

Publisher

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Emerald Publishing Limited

Copyright © 2022, Emerald Publishing Limited

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