The investigation of Corporate Social Responsibility Disclosure impact on cash holding by idiosyncratic risk and systematic risk in companies Listed on the Tehran Stock Exchange

Document Type : Research Paper

Authors

Abstract

ABSTRACT
Cash inventories are an important part of a business's assets and they have always attracted the attention of various researchers. In this study, the effect of corporate social responsibility disclosure (CSRD) on the level of cash holding of companies listed in the Tehran Stock Exchange has been investigated, and two communication channels of special risk and systematic risk have been considered to explain how the independent variable affects the dependent variable. In order to achieve the research goal, 122 companies have been selected from the companies listed on the Tehran Stock Exchange from 2009 to 2016 by a systematic elimination sampling method. The research findings showed that the corporate social responsibility disclosure has a positive and significant effect on the level of cash holding. The results also showed that an increase in the corporate social responsibility disclosure does reduce the specific risk
 
1- Introduction
We identify two channels and the corresponding mechanisms through which corporate social responsibility disclosure (CSRD) may affect corporate cash holdings. CSR firms are expected to have relatively low cash holdings because they tend to have low idiosyncratic risk due to their higher social capital with stakeholders. CSR firms also tend to have low systematic risk due to greater loyalty from CSR investors and/or customers. The lower systematic risk may increase or decrease cash holdings. Although low systematic risk induces firms to reduce their cash holdings, it also induces firms to hold a short debt maturity structure, with higher refinancing risks that higher cash holdings may mitigate.
 
2- Hypotheses
While the determinants of corporate cash holdings have been widely studied in the literature, the direct relationship between corporate social responsibility disclosure (CSRD) and corporate cash holdings remains largely unexplored. We fill this gap by examining whether and how CSR relates to corporate cash holdings. In particular, we identify and test two channels through which CSRD may explain cash holdings.
Thus, research hypotheses developed as follows:
H1: Corporate social responsibilities disclosure impact on companies' cash holding by influencing on idiosyncratic risk.
H2: Corporate social responsibilities disclosure impact on companies' cash holding by influencing on systematic risk.
 
3- Methods
To test the research hypotheses, we specify the following empirical model:
 
  
The model consists of four equations. Equation (1) describes how the idiosyncratic risk (Idio) channel, the systematic risk (Beta) channel to determine corporate cash holdings (cash). The presence of corporate social responsibility disclosure (CSRD) in equation (1) allows for the possibility that CSRD may have a direct effect on corporate cash holdings. Equations (2) and (3) describe how CSRD affects the idiosyncratic risk channel (Equation (2)) and the systematic risk channel (Equation (3)), respectively. In this model, idiosyncratic risk and systematic risk, are the channels through which CSRD affects cash holdings indirectly. Note that the control variables may overlap with each other in these three equations.
As for estimation we use the Ordinary Least Squares (OLS) and Two-Stage Least Squares (TSLS) methods (i.e., Equations (1) to (4)) as a simultaneous equations model.
 
4- Results
The results reported in Table (8) and (9) show that corporate cash holdings are related positively (and statistically significantly) to idiosyncratic risk while they are related negatively (and statistically significantly) to systematic risk, confirming the results of Bates et al. (2009) and Acharya et al. (2013). Consistent with Luo and Bhattacharya (2009) and Albuquerque et al. (2014), it reveals that CSRD is negatively related to idiosyncratic risk and systematic risk.
 
5- Discussion and Conclusion
This study examines whether and how corporate social responsibility disclosure affects corporate cash holdings. In particular, it examines two channels through which corporate social responsibility affects cash holdings. The first channel argues that CSR-related activities can build up the social (or moral) capital of firms because they enhance good relationships with stakeholders. Firms can use the social (or moral) capital to weather bad times and reduce the need to hold excessive cash. The second channel posits that price-inelastic demand due to customer loyalty and/or investor loyalty to CSR firms makes these firms less sensitive to aggregate market shocks (i.e., lowers the systematic risk), and this may increase or decrease the cash holdings. On the one hand, the need for cash hoarding may decrease because of lower systematic risk; on the other hand, the need may increase because firms with lower systematic risk tend to have a shorter debt maturity structure and, thus, a higher refinancing risk.
Using 122 firms with 976 firm-year observations over the period 1388-1395, we find that CSRD is correlated with corporate cash holdings significantly and positively. Also, the findings of the study show that there is a significant relationship between corporate social responsibility disclosure and cash holding through mediator variables of idiosyncratic risk and systematic risk.
 

Keywords

References

ب. انگلیسی
   Acharya, V. V., Almeida, H., & Campello, M. (2013). Aggregate risk and the choice between cash and lines of credit. The Journal of Finance, 68(5), 2059-2116.
Afshar zeidabadi, F., Alinezhad Sarokolaee, M., Zeidabadinezhad, M. (2015). studying the effect of auditor's characteristics and managerial ownership on cash holding level. Journal of Accounting Advances , 7(2), 1-32. (In Persian) 
Ahmadpour, A., Farmanbardar, M. (2014). Investigating the relationship between company social responsibility and stock market Price. The Second National Conference on Accounting, Management and Economics, Islamic Azad University, Fooman and Shaft Branch. (In Persian)
Albuquerque, R., Durnev, A., & Koskinen, Y. (2012). Corporate social responsibility and asset pricing in industry equilibrium. Available at SSRN 1961971.
 Al-Najjar, B. (2013). The financial determinants of corporate cash holdings: Evidence from some emerging markets. International Business Review, 22(1), 77-88.
Arouri, M., & Pijourlet, G. (2017). CSR performance and the value of cash holdings: international evidence. Journal of Business Ethics, 140(2), 263-284.
  Bao, D., Chan, K. C., & Zhang, W. (2012). Asymmetric cash flow sensitivity of cash holdings. Journal of Corporate Finance, 18(4), 690-700.
Bates, T. W., Kahle, K. M., & Stulz, R. M. (2009). Why do US firms hold so much more cash than they used to?. The Journal of Finance, 64(5), 1985-2021.
  Buckly, M.R., Beu, D., & Frink, D. (2001). Ethical issues in human resources systems, Human Resource Management Review, 11(C), 11-29.
Carroll, A. B. (1999). Corporate social responsibility: Evolution of a definitional construct. Business & Society, 38(3), 268-295.
Chen, H., Xu, Y., & Yang, J. (2012). Systematic Risk, Debt Maturity, and the Term Structure of Credit Spreads (No. w18367). National Bureau of Economic Research.
 Cheung, A. W. K. (2016). Corporate social responsibility and corporate cash holdings. Journal of Corporate Finance, 37(C), 412-430.
Clarkson, P. M., Fang, X., Li, Y., & Richardson, G. (2013). The relevance of environmental disclosures: Are such disclosures incrementally informative?.  Journal of Accounting and Public Policy, 32(5): 410-431.
Danaeifard, H., Alwani, S. M., Azar, A. (2013). Methodology of quantitative research in management: a comprehensive approach, Tehran, Saffar Publications. (In Persian)
Darabi, R., Vaghfi, S. H., Salmanian, M. (2017). Relationship between social responsibility reporting with company value and risk for companies registered in Tehran Stock Exchange. Iranian journal of Value & Behavioral  Accounting,1 (2),193-213. (In Persian)
 Degli Antoni, G., & Sacconi, L. (2011). Does Virtuous Circle between Social Capital and CSR Exist? A “Network of Games” Model and Some Empirical Evidence (No. 1103).
Donaldson, T., & Preston, L. E. (1995). The stakeholder theory of the corporation: Concepts, evidence, and implications. Academy of Management Review, 20(1), 65-91.
El Ghoul, S., Guedhami, O., Kwok, C. C., & Mishra, D. R. (2011). Does corporate social responsibility affect the cost of capital?. Journal of Banking & Finance, 35(9), 2388-2406.
Fama, E. F., & French, K. R. (1993). Common risk factors in the returns on stocks and bonds. Journal of Financial Economics, 33(1), 3-56.
Foroughi, D., Amiri, H., Farzadi, S. (2016). Investigating the effect of institutional shareholders' oversight mechanisms on the relationship between cash flows and changes in the level of cash retention of Tehran Stock Exchange companies. Auditing Knowledge, 16 (62), 63-78. (In Persian)
Foroughi, D., Mirshams Shahshahani, M., Pourhossein, S. (2008). Managements' Perceptions about Social Accounting Information Disclosures: Listed Companies in TSE. Accounting and Auditing Review, 15(52), 55-70. (In Persian)
García‐Teruel, P. J., Martínez‐Solano, P., & Sánchez‐Ballesta, J. P. (2009). Accruals quality and corporate cash holdings. Accounting & Finance, 49(1), 95-115.
Ghaemi, M. H., Alavi, S. M. (2012). Relationship between accounting information transparency and corporate cash holdings. Management Accounting, 5(1), 67-78. (In Persian)
Ghorbani, S., Adili, M. (2012). Firm value, cash holdings and information asymmetry.Journal of Accounting Knowledge , 3(8), 131-149. (In Persian)
     Greening, D. W., Turban, D. B. (2000). Corporate social performance as a competitive advantage in attracting a quality workforce. Business of Social, 39(3), 254–280.
Hajiha, Z., Sarfaraz, B. (2015). The Relation between corporate social responsibility and cost of equity capital of firms listed in Tehran Stock Exchange. Empirical Research in Accounting, 4(2), 105-123. (In Persian)
Harford, J., Klasa, S., & Maxwell, W. F. (2014). Refinancing risk and cash holdings. The Journal of Finance, 69(3), 975-1012.
Hasas Yeganeh, Y., Jafari, A., Rasaeian, A. (2011). Factors determining the level of cash retention in the Tehran Stock Exchange. Financial Accounting, 3 (9), 39-66. (In Persian)
Hassan, N. (2010). Corporate Social Responsibility Disclosure: An Examination of Framework of Determinants and Consequences (Doctoral dissertation, Durham University).
Kim, Y., Li, H., & Li, S. (2014). Corporate social responsibility and stock price crash risk. Journal of Banking & Finance, 43, 1-13.
Larckar, D. F., and Rusticus, T. O. (2010). On the use of instrumental variables in accounting research. Journal of Accounting Research, 38(supplement): 91-124.
Louise, Y, L., Greg Shailer & Yangxin, Y. (2017). Corporate social responsibility disclosure and the value of cash holding. Accounting Review, 26(4), 729-753.
Luo, X., & Bhattacharya, C. B. (2009). The debate over doing good: Corporate social performance, strategic marketing levers, and firm-idiosyncratic risk. Journal of Marketing, 73(6), 198-213.
Malik, M. (2015). Value-enhancing capabilities of CSR: A brief review of contemporary   literature. Journal of Business Ethics, 127(2): 419-438.
McGuire, J., Dow, S., Argheyd, K. (2003). CEO incentives and corporate social performance. Journal of  Business Ethics, 45 (4), 341–359.
Namazi, M. & Namazi, N. R. (2016). Conseptual Analysis of Moderator and Mediator Variables in Business Research. Proceida Economics and Finance, 36, 540-554.
Namazi, M., Ebrahimi Meymand., M. (2016). Studying the disclosure of risk and influencial factors on this disclosure. Journal of Financial Accounting Knowledge, 3(2), 1-29. (In Persian)
Namazi, M., Moghimi, F. (2018). Effects of innovations and moderating role of corporate social responsibility on the financial performance of the firms listed on the tehran stock exchange in different industries. Accounting and Auditing Review, 25(2), 289-310.(In Persian)
Nazari, J. A., Hrazdil, K., & Mahmoudian, F. (2017). Assessing social and environmental performance through narrative complexity in CSR reports. Journal of Contemporary Accounting & Economics, 13(2), 166-178.
Orlitzky, M., Schmidt, F. L., & Rynes, S. L. (2003). Corporate social and financial performance: A meta-analysis. Organization Studies, 24(3), 403-441.
Ozkan Aydin, Ozkan Nislihan. (2004). Corporate cash holdings: An empirical investigation of UK companies. Journal of Banking & Finance, 28, 2103-2134.
Paek, S., Xiao, Q., Lee, S., & Song, H. (2013). Does managerial ownership affect different corporate social responsibility dimensions? An empirical examination of US publicly traded hospitality firms. International Journal of Hospitality Management, 34, 423-433.
Palazzo, B. (2012). Cash holdings, risk, and expected returns. Journal of Financial Economics, 104(1), 162-185.
Raei, R., Pouyanfar, A. (2014). Advanced Investment Management, Tehran, Samat Publications. (In Persian)
Raei, R., Saeedi, A. (2004). Fundamentals of Financial Engineering and Risk Management, Tehran, Tehran University School of Management Publishing and Samat Publications. (In Persian)
Russo, A., & Perrini, F. (2010). Investigating stakeholder theory and social capital: CSR in large firms and SMEs. Journal of Business Ethics, 91(2), 207-221.
Serafeim, G., Ioannou, I., & Cheng, B. (2011). Corporate Social Responsibility and Access to Finance. Strategic Management Journal, 35, 1-23.
Setayesh, M., Rezaei, G., Hosseini Rad, D. (2013). Extended abstract the role of ownership structure in the inventory and cash management practices in the companies listed on Tehran Stock Exchange. Journal of accounting advances, 6(1), 29-62. (In Persian)
Tavakolnia, I., Tirgari, M. (2014). Financial leverage, cash holdings and firm value in the companies listed in tehran stock exchange: investigating non-linear and hierarchical relationships. Management Accounting,7(3), 35-51. (In Persian)
Wang, H., Tong, L., Takeuchi, R., & George, G. (2016). Corporate social responsibility: An overview and new research directions: Thematic Issue on Corporate Social Responsibility.
Zabihi, A., Daryabari, A. (2017). Relationship between different dimensions of corporate social responsibility based on the model Nirwanto and stock price crash risk in Tehran Stock Exchange. Journal of Management Accounting and Auditing Knowledge, 6(21), 61-76. (In Persian)
Zhang, J. (2011). The Relationship Between Working Capital Management And The Corporate Cash Holdings. University of Eastern Finland, Fac

Files

History

  • Receive Date: 24 October 2017
  • Revise Date: 17 April 2018
  • Accept Date: 09 May 2018

Share

How to cite

Statistics