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Do Companies Need Financial Flexibility for Sustainable Development?

Author

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  • Haifeng Zhang

    (College of Economics and Management, Nanjing University of Aeronautics and Astronautics, Nanjing 211106, China
    Management Science, University of Waterloo, Waterloo, ON N2L 3G1, Canada)

  • Zhuo Zhang

    (College of Economics and Management, Nanjing University of Aeronautics and Astronautics, Nanjing 211106, China)

  • Ekaterina Steklova

    (Tengfay Consulting, 64 Meadowlane Dr, Kitchener, ON N2N1E9, Canada)

Abstract

Reserve financial flexibility relates to the long-term development of enterprises. Enterprise managers pay more and more attention to the financial flexibility of reserves, which, however, will cause problems such as insufficient investment and inefficient use of funds. This paper collects data from the listed companies in the Shanghai and Shenzhen Stock Exchanges from 2009 to 2017. Our main results include the following. First, corporate social responsibility has a certain substitution effect on financial flexibility. Second, after excluding state-owned enterprises and politically-linked enterprises, there is a stronger substitution effect between social responsibility and financial flexibility for private enterprises without political connections. Third, the substitution effect between social responsibility and financial flexibility is stronger in companies with high environmental uncertainty and financing constraints. Furthermore, using a 2SLS procedure, we have verified that the substitution effect between social responsibility and financial flexibility is robust.

Suggested Citation

  • Haifeng Zhang & Zhuo Zhang & Ekaterina Steklova, 2020. "Do Companies Need Financial Flexibility for Sustainable Development?," Sustainability, MDPI, vol. 12(5), pages 1-14, February.
    • Handle: RePEc:gam:jsusta:v:12:y:2020:i:5:p:1811-:d:326289
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