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Corporate social responsibility and degrees of operating and financial leverage

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  • Maretno Agus Harjoto

    (Pepperdine University)

Abstract

We examine the relationship between corporate social responsibility (CSR) and firms’ degrees of operating (DOL) and financial leverage (DFL). Combining the enlightened value maximizing and capital structure theories, we hypothesize that CSR as firms’ strategic choice to internalize the cost from implicit contracts between the firms and their non-investing stakeholders affects firms’ operating and financial leverage. We find empirical evidence that CSR and CSR strengths are positively (negatively) related to firms’ DOL (DFL). CSR concerns are positively related firms’ DOL and DFL. We also document that CSR is positively related to firms’ operating cost and we find evidence that CSR acts as a substitute for corporate debt tax shield when firms’ financial leverage is low.

Suggested Citation

  • Maretno Agus Harjoto, 2017. "Corporate social responsibility and degrees of operating and financial leverage," Review of Quantitative Finance and Accounting, Springer, vol. 49(2), pages 487-513, August.
    • Handle: RePEc:kap:rqfnac:v:49:y:2017:i:2:d:10.1007_s11156-016-0598-5
    DOI: 10.1007/s11156-016-0598-5
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    More about this item

    Keywords

    Operating leverage; Financial leverage; Corporate social responsibility; Enlightened value maximizing; Capital structure;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D20 - Microeconomics - - Production and Organizations - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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