CSR regulation and the working capital management policy

This study examined the impact of CSR regulation on the working capital management of Indian firms, using the mandatory 2% CSR spending regulation implemented in India in 2015 as a quasi-natural experiment setup. We used the cash conversion cycle (CC_Cycle) as a proxy to measure working capital management, determining that CSR regulation positively impacted the CC_Cycle. Furthermore, cheaper debt from institutional sources replaced the costly trade credit, which drives this relationship. Our results remained robust for various model specifications, estimators, and sample selection procedures. They were consistent with the views of the financial access hypothesis, suggesting that CSR activities increase firms' access to finance from institutional sources, allowing firms to replace costly trade credits with cheaper institutional capital.