Vanya Rusinova
Copenhagen Business School
Access to Finance and Corporate Social Responsibility: Causal Evidence from a Natural Experiment
ABSTRACT
In this paper, we test for a causal relationship between improved access to finance and superior performance on corporate social responsibility (CSR). To establish causality, we make use of the exogenous variation in firm-level capital constraints induced by the American Jobs Creation Act (AJCA) of 2004. The act provided a significant one-off reduction in tax-related costs to profits repatriated from foreign subsidiaries back to the U.S.-based parent firm. The tax cut lowered the cost of internal financing and thereby improved the overall access to finance for firms repatriating under the act. Results from a sample of U.S. firms for the years 2001 through 2007 provide causal evidence that improved access to finance leads to higher performance on CSR. Additionally, we test whether the effect on CSR performance is stronger among firms, which were financially constrained prior to the act, for firms where agency problems are more likely to exist and for firms with lower prior performance on CSR.
BIOGRAPHY
Vanya Rusinova is a PhD Fellow at the Department of International Economics and Management at Copenhagen Business School. She holds an Elite Master’s in Advanced Economics and Finance from Copenhagen Business School. Her research interests include strategies for poverty alleviation, access to finance and corporate social responsibility (CSR). Her dissertation focuses on the strategic use of CSR by MNEs. She is currently working on a project examining the causal effect of improved access to finance on firms’ performance on CSR.