Corporate Social Responsibility and Firm Liquidity Risk: U.S. Evidence

In this study, we empirically investigate whether and to what extent corporate social responsibility (CSR) may affect firm liquidity risk. We define liquidity risk as the covariance between market-wide liquidity shocks and individual firms’ stock returns and employ two methods to estimate firm liquidity risk. We find a negative association between CSR and firm liquidity risk after controlling for various firm characteristics, i.e., year and industry fixed effects. Our results are robust to possible endogeneity issues when we adopt two-stage lease square estimator and dynamic GMM estimator. In addition, we document that the negative relation between CSR and firm liquidity risk is more pronounced when firms have higher reliance on external financing.