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

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

Research output: Contribution to journalArticlepeer-review

15 Scopus citations

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.

Original languageEnglish
Pages (from-to)364-387
Number of pages24
JournalJournal of Corporate Finance
Volume56
DOIs
StatePublished - Jun 2019

Keywords

  • Cash holdings
  • Corporate social responsibility
  • Stakeholder theory
  • Value of cash

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