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CSR Regulation and Working Capital Management: Evidence from a Quasi-Natural Experiment

Author

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  • Nemiraja Jadiyappa

    (Indian Institute of Management Kozhikode)

  • Mrunal Chavda

    (Indian Institute of Management Raipur)

Abstract

This study examines the impact of CSR regulation on the working capital management of Indian firms using the 2% mandatory CSR spending regulation implemented in India in 2015 as a quasi-natural experiment setup. Using the cash conversion cycle (CC_Cycle) as a proxy to measure working capital management, we observe a positive impact of CSR regulation on CC_Cycle. Further, we show that this negative relationship is driven by the fact that the costly trade credit was replaced by cheaper debt from institutional sources. The results remain robust for various model specifications, estimators, and sample selection procedures. These results are consistent with the views of the financial access hypothesis, which suggests that CSR activities increase firms' access to finance from institutional sources, allowing firms to replace costly trade credits with cheaper institutional capital.

Suggested Citation

  • Nemiraja Jadiyappa & Mrunal Chavda, 2023. "CSR Regulation and Working Capital Management: Evidence from a Quasi-Natural Experiment," Working papers 573, Indian Institute of Management Kozhikode.
    • Handle: RePEc:iik:wpaper:573
    as

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    References listed on IDEAS

    as
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