Corporate Social Responsibility and Capital Structure

Abstract

Objective: We analyze the effects of capital structure influence on corporate social responsibility (CSR) performance, represented by the ESG score. Prior studies have investigated distinct factors to settle CSR adoption. Nonetheless, corporate social responsibility literature has not yet achieved common consent. Method: This study uses a quantitative research approach. We used a sample of listed companies from the United States of America, China, Japan, Germany, India, the United Kingdom, France, Italy, Brazil, and Canada. Three estimators were applied in the regression model, OLS pooled, IV 2SLS, and GMM 2SLS. Results: Our findings indicate a positive and significant relationship between Capital Structure and CSR. Furthermore, we understand that the positive and statistically significant findings in the relationship between market value and corporate social responsibility index are because corporate social responsibility has an intangible asset in its constitution: the corporate reputation. Therefore, these results converge into accepting these practices, which generate a firm’s value, justifying the positive and significant association. Finally, it is essential to highlight that the variations found between countries, especially companies from nations with higher GDP, need a more substantial capital structure than smaller ones to obtain a positive CSR index. Contributions: The paper argues that the capital structure can be introduced related to adopting corporate social responsibility. It is worth noting that this research aims not to provide an optimal set of factors that affect corporate social responsibility practices but to highlight the intangible effect of corporate reputation generated by the capital structure that other studies can investigate.