Corporate social responsibility and debt maturity structure: evidence from a quasi-natural experiment

Abstract

Purpose This study aims to investigate the impact of mandatory corporate social responsibility (CSR) regulation on firms’ debt maturity structure. The authors further examine how changes in debt maturity structure affect firms’ operating performance. Design/methodology/approach The authors use an entropy-balanced difference-in-differences (Entropy-DiD) design to identify the causal effect of the mandatory CSR regulation on firms’ debt maturity structure. Using the same empirical framework, the authors further examine cross-sectional heterogeneity in the treatment effects of the regulation and assess how the law-induced changes in debt maturity structure affect firms’ operating performance. Findings The authors document that mandatory CSR spending leads to a decline in the share of long-term debt in firms’ total debt, thereby weakening operating performance. The adverse effect is attenuated for larger firms, indicating that firm size mitigates the negative consequences of mandated CSR. The findings are robust to the inclusion of firm-year covariates, relevant fixed effects, as well as a placebo test using a fictitious enactment year. Taken together, the evidence demonstrates that mandated CSR allocations exert detrimental effects on corporate outcomes. Originality/value To the best of the authors’ knowledge, this study provides the first evidence on how mandatory CSR regulations affect the maturity structure of corporate debt. While prior research has examined voluntary CSR or the price terms of debt, the impact of mandatory CSR on non-price terms such as debt maturity remains underexplored. Using India’s 2015 CSR mandate as a quasi-natural experiment, the authors find that mandated CSR increases firms’ reliance on short-term borrowing, reflecting lenders’ reluctance to extend long-term financing. The results underscore the implications of mandatory CSR for nonprice terms of debt and offer important insights for policymakers and managers regarding financing constraints under enforced CSR regimes.