Slack resources, free cash flow and corporate social responsibility expenditure: evidence from an emerging economy

Abstract

PurposeThe 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/approachThe 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.FindingsThe 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/valueThis 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.

How does the absorbed slack impact corporate social responsibility? Exploring the nonlinear effect and condition in China

“…Our research develops the literature on organizational slack and CSR. Compared to previous studies on unabsorbed slack and CSR (Islam et al, 2021;Vanacker et al, 2017), this study focuses on the impact of absorbed slack on CSR behavior and discovers an inverted U-shaped relationship. We explored the moderating mechanisms affecting CSR from internal ownership concentration and external political connection perspectives.…”

Are corporate social responsibility reports informative? Evidence from textual analysis of banks in China

“…The second view, often referred to as the theory of slack resource, posits that firms engage in socially responsible activities when they have access to excess financial resources. Following Islam et al (2021), we consider bank size (SIZE), measured as the natural logarithm of total assets in year t, and corporate stability (CSTAB), represented by Z-score, calculated as the ROA plus capital-asset ratio (CAR) divided by the standard deviation of ROA, as the measures of slack resources. Zhou and Wong (2008) document that banks with large asset size and poor management quality in China tend to earn narrower interest margins.…”

“…The control and slack variables considered are slightly different from those used in the previous sections. In particular, we consider state ownership, bank size, ROA, corporate stability, growth opportunity (LogQ) and market-to-book ratio (MTB) (Chen et al, 2018;Islam et al, 2021;Lys et al, 2015). The regression result of Eqn (3a) is summarized in Panel A of Table 6.…”

How Do Active Firms Implementing Corporate Environmental Responsibility Take Technological Approaches to Environmental Issues? A Resource-Allocation Perspective

“…In particular, we examine the role of CER implementation by figuring out whether CER implementation can lead to environmental innovation. In addition, to examine the aspect in which resource allocation processes between responding external pressures (i.e., CER) and developing internal technological capabilities (i.e., EI) are involved, we consider a moderator which represents resource constraints: slack resources, which refer to firm resources which are possessed for its future actions [27,28]. As many studies consider, slack resources are a way to capture resource constraints or resource abundance of the firm in investigating corporate social responsibility [28][29][30].…”

“…In addition, to examine the aspect in which resource allocation processes between responding external pressures (i.e., CER) and developing internal technological capabilities (i.e., EI) are involved, we consider a moderator which represents resource constraints: slack resources, which refer to firm resources which are possessed for its future actions [27,28]. As many studies consider, slack resources are a way to capture resource constraints or resource abundance of the firm in investigating corporate social responsibility [28][29][30]. Since slack resources can play a buffer role in environmental uncertainty [31], any risks from the CSR activities can be alleviated with slack resources.…”