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Commitment to build trust by socially responsible firms: Evidence from cash holdings

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  • Chang, Ching-Hung
  • Chen, Sheng-Syan
  • Chen, Yan-Shing
  • Peng, Shu-Cing

Abstract

We show that socially responsible firms use cash as a commitment device to honor implicit commitments to stakeholders. Firms with better social performance hold higher cash balances, especially for firms with social performance related to stakeholders or requiring cash spending. This relation is also stronger for firms that benefit more from social performance, e.g., firms that face more competition in product and labor markets. Social performance related to stakeholders or requiring cash spending increases the marginal value of cash.

Suggested Citation

  • Chang, Ching-Hung & Chen, Sheng-Syan & Chen, Yan-Shing & Peng, Shu-Cing, 2019. "Commitment to build trust by socially responsible firms: Evidence from cash holdings," Journal of Corporate Finance, Elsevier, vol. 56(C), pages 364-387.
    • Handle: RePEc:eee:corfin:v:56:y:2019:i:c:p:364-387
    DOI: 10.1016/j.jcorpfin.2019.03.004
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    More about this item

    Keywords

    Corporate social responsibility; Cash holdings; Stakeholder theory; Value of cash;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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