Slack resources, free cash flow and corporate social responsibility expenditure: evidence from an emerging economy
Journal of Accounting in Emerging Economies
ISSN: 2042-1168
Article publication date: 5 April 2021
Issue publication date: 23 July 2021
Abstract
Purpose
The purpose of this study is to investigate whether financial resource allocation decisions for corporate social responsibility (CSR) depends on slack resources and free cash flow.
Design/methodology/approach
The study's sample consists of 202 company-year observations from 51 financial institutions over the period 2015–2019. The authors collected CSR data from CSR review reports published by the Central Bank (Bangladesh Bank). The financial and governance data are collected from corporate annual reports and year-end review reports published by the Dhaka Stock Exchange. This study uses both the random-effect and generalized estimating equation models to test the hypotheses.
Findings
The authors establish two key findings consistent with the predictions of slack resource theory and free cash flow theory. First, the authors find a significant and positive relationship between slack resources and CSR expenditure. This result also supports the traditional thinking about corporate giving – that doing well enables doing good. Second, the author show that increases in free cash flow are associated with increases in CSR expenditure. This indicates the presence of agency problems between managers and shareholders regarding CSR expenditure.
Originality/value
This study is the first to show the positive impacts of slack resources and free cash flow on CSR expenditure in an emerging economy characterized by both capital constraints and high salience of CSR expenditure. The study has important implications for regulators, advocacy groups, shareholders and analysts in emerging economies that share similar contextual characteristics.
Keywords
Citation
Islam, S.M.T., Ghosh, R. and Khatun, A. (2021), "Slack resources, free cash flow and corporate social responsibility expenditure: evidence from an emerging economy", Journal of Accounting in Emerging Economies, Vol. 11 No. 4, pp. 533-551. https://doi.org/10.1108/JAEE-09-2020-0248
Publisher
:Emerald Publishing Limited
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