Center for Advancing Accounting

CSR and Credit Line Usage: Evidence from the onset of COVID-19

• In Event: Dialogue Session – Decision Making

Abstract

In this paper, we use firms' access to capital based on their engagement in corporate social responsibility (CSR) to examine how firms use lines of credit during a financial crisis. Specifically, we test a proposition that a portion of amounts drawn by firms may not be necessary for firm operations but is driven by shareholder signaling. We first show that high CSR firms draw down significant amounts at the onset of the COVID-19 pandemic. We then conjecture that if a portion of this amount is not necessary for operations, credit line draws may differ based on the shareholder pressure firms face. Consistent with this, we find that draws on credit lines are significantly lower for high CSR firms located in U.S. states that allow firms to consider the needs of other stakeholders, beyond shareholders, when making corporate decisions (i.e. based on state adoption of non-shareholder constituency). Since the use of credit lines is costly for firms and can create negative externalities in the economy, our findings suggest that statutory interventions can mitigate the potential adverse effects of firms making unnecessary draws on the limited available capital in the economy during crisis periods.

Authors

• Monica Kabutey, University of North Texas

• Syrena Shirley, George Mason University

• Anywhere Sikochi, Harvard University