Corporate social responsibility and debt financing of listed firms: a quantile regression approach

Abstract

Purpose

The purpose of the study is to examine the effect of corporate social responsibility (CSR) on debt financing (natural logarithm of debt and leverage ratios) of listed firms.

Design/methodology/approach

Using content analysis for data extraction, the study examines listed firms on the Bombay Stock Exchange (BSE) from 2010 to 2019 financial year. It uses a quantile regression and panel fixed effect regression as the model's application.

Findings

The study shows that CSR expenditure has a positive and strong correlation with debt financing (i.e. natural logarithm of long-term and short-term debts). The first findings show that CSR expenditure has a negative and statistically significant association with total leverage ratio, using conditional mean and median percentile. However, there is a positive and statistically significant association between CSR expenditure and long-term leverage ratio at the 25th and 50th percentile. The second findings show that CSR expenditure has a positive and statistically significant association with long-term debt but an insignificant association with short-term debt and total debt under a conditional mean average. The application of quantile regression addresses the values that fall outside the confidence interval and therefore document a positive and statistically significant association between CSR expenditure and debt financing (short-term debt, long-term debt and total debt) at the 25th, 50th and 75th percentile.

Originality/value

The introduction of quantile regression gives a novelty in CSR and debt financing study, which to the best of the authors’ knowledge, has not received any attention. Similarly, firms have better information on how to position their CSR expenditure to attract providers of debt financing.

Citation

Oware, K.M. and Mallikarjunappa, T. (2021), "Corporate social responsibility and debt financing of listed firms: a quantile regression approach", Journal of Financial Reporting and Accounting, Vol. 19 No. 4, pp. 615-639. https://doi.org/10.1108/JFRA-07-2020-0202