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Appears in Collections:Accounting and Finance Journal Articles
Peer Review Status: Refereed
Title: Mandatory CSR expenditure and stock market liquidity
Author(s): Roy, Partha P
Rao, Sandeep
Zhu, Min
Keywords: CSR
Stock market liquidity
Mandatory CSR law
Social capital
Issue Date: Feb-2022
Date Deposited: 4-Feb-2022
Citation: Roy PP, Rao S & Zhu M (2022) Mandatory CSR expenditure and stock market liquidity. Journal of Corporate Finance, 72, Art. No.: 102158.
Abstract: We investigate the nexus between corporate social responsibility (CSR) and firms' stock market liquidity. Using actual firm-level CSR expenditure data and a quasi-natural experiment setup of a mandated CSR regulation in India, we find that firms complying with the mandate experience significantly higher stock market liquidity, relative to non-CSR firms in the post-CSR mandate period. This effect seems to be more pronounced among CSR firms not affiliated to business groups, with concentrated promoter ownership, with low institutional ownership, with foreign sales and having operations in multiple locations. Further, we find that firms spending more on education and healthcare projects as part of their mandatory CSR engagement have higher stock market liquidity. Our results are in line with the conjecture that mandatory CSR regulation could lead to reduced information asymmetry and improved social and reputational capital, and thus improve the stock market liquidity of CSR firms. Finally, we show that mandated CSR firms, having superior stock market liquidity, obtain higher market valuations in the long run.
DOI Link: 10.1016/j.jcorpfin.2022.102158
Rights: This is an open access article distributed under the terms of the Creative Commons CC-BY license (, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. You are not required to obtain permission to reuse this article.
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