With this paper, written with George Serafeim (HBS) and Beiting Cheng (HBS), we contribute both empirically and theoretically towards the debate of whether CSR strategies create value for the firm in the long run. Unlike previous studies that have focused primarily on the social – financial performance link, in our work we investigate whether CSR may contribute to long-term value creation by facilitating access to financing resources through capital markets. In particular, we suggest that better access to finance may result from reduced agency costs, due to enhanced stakeholder engagement for firms with high CSR performance, and from increased transparency due to the increased likelihood of non-financial reporting (disclosure) by firms with high CSR performance.

To investigate the impact that CSR has on capital constraints, we use data from Thompson Reuters ASSET4 for 2,439 publicly listed firms during the period 2002 to 2009. The results confirm that firms with better CSR performance face lower capital constraints. We test the robustness of the results, by substituting the KZ index (our measure of capital constraints) with an indicator variable for stock repurchase activity, and we find similar results. Importantly, the results remain unchanged when we implement an instrumental variables approach and a simultaneous equations model, mitigating potential endogeneity concerns or correlated omitted variables issues, and providing evidence for a causal argument. Finally, we disaggregate CSR performance into its three components to gain insight as to which pillars have the greatest impact on capital constraints. We find that the result is driven primarily by social and environmental performance.

Available through SSRN here.