Corporate Sustainability Performance (CSP), Leverage Adjustment, and Financial Performance

Meliani Mukti, Indra Wijaya Kusuma

Abstract


The study aims to examine the impact of corporate sustainability performance (CSP) on corporate financial performance (CFP) and corporate leverage adjustment of publicly listed companies in Southeast Asia. We studied the indirect effect of CSP on CFP through leverage adjustment using the generalized method of moments to estimate the target of the firm’s leverage. We analyzed 968 firm-year observations from 121 companies from 2012–2019 using generalized least squares. We find that CSP exerts both a direct and an indirect influence on corporate financial performance (CFP). CSP affects CFP positively through leverage adjustment in an indirect manner. CSP encourages the firm to move faster to their target leverage, while the faster leverage adjustment improves corporate financial performance. The indirect effects of CSP on CFP might indicate the substantial financial resources required to undertake CSP initiatives. The results support the stakeholder theory and capital structure theory, with a particular emphasis on the dynamic trade-off theory. Empirical research has indicated that the relationship between CSP and CFP yields varying outcomes, which may imply the existence of confounding variables that we conjecture are associated with corporate capital structure.


Keywords


Corporate sustainability performance, Corporate financial performance, Corporate leverage adjustment.

Full Text:

PDF

References


Albuquerque, R., Koskinen, Y., & Zhang, C. (2018). Corporate social responsibility and firm risk: Theory and empirical evidence. Management Science, 1-19.

Allen, F., & Santomero, A.M. (1997). The Theory of Financial Intermediation. Journal of Banking and Finance, 21, 1461-1485.

An, Z., Chen, C., Li, D., & Yin, C. (2021). Foreign institutional ownership and the speed of leverage adjustment: International evidence. Journal of Corporate Finance, 68(April), 101966.

An, Z., Li, D., & Yu, J. (2015). Firm crash risk, information environment, and speed of leverage adjustment. Journal of Corporate Finance, 31, 132–151.

Attig, N., El Ghoul, S., Guedhami, O., & Suh, J. (2013). Corporate Social Responsibility and Credit Ratings. Journal of Business Ethics, 117(4), 679–694.

Bae, K. H., El Ghoul, S., Guedhami, O., Kwok, C. C. Y., & Zheng, Y. (2019). Does corporate social responsibility reduce the costs of high leverage? Evidence from capital structure and product market Interactions. Journal of Banking and Finance, 100, 135–150.

Bajaj, Y., Kashiramka, S., & Singh, S. (2020). Application of capital structure theories: a systematic review. Journal of Advances in Management Research, 18(2), 173–199.

Bouraoui, T., & Rennes, E. (2014). Structure In Mergers and Acquisitions. 30(1), 27–42.

Cao, J., Titman, S., Zhan, X., & Zhang, W. (2023). ESG Preference, Institutional Trading, and Stock Return Patterns. Journal of Financial and Quantitative Analysis, 58(5), 1843–1877.

Cheng, B., Ioannou, I., & Serafeim, G. (2014). Corporate social responsibility and access to finance. Strategic Management Journal, 35(1), 1–23.

Chua, M., Razak, N. H. A., Nassir, A. M., & Yahya, M. H. (2021). Speed of adjustment towards target leverage in the asean countries. International Journal of Business and Society, 22(1), 313–331.

Çolak, G., Gungoraydinoglu, A., & Öztekin, Ö. (2018). Global leverage adjustments, uncertainty, and country institutional strength. Journal of Financial Intermediation, 35, 41–56.

Danis, A., Rettl, D. A., & Whited, T. M. (2014). Refinancing, profitability, and capital structure. Journal of Financial Economics, 114(3), 424–443.

Deangelo, H. (2022). The Capital Structure Puzzle: What Are We Missing? In Journal of Financial and Quantitative Analysis (Vol. 57, Issue 2).

Dhaliwal, D. S., Li, O. Z., Tsang, A., & Yang, Y. G. (2011). Voluntary nonfinancial disclosure and the cost of equity capital: The initiation of corporate social responsibility reporting. Accounting Review, 86(1), 59–100.

Ding, D. K., & Beh, S. E. (2022). Climate Change and Sustainability in ASEAN Countries. Sustainability (Switzerland), 14(2), 1–17.

Do, T. K., Lai, T. N., & Tran, T. T. C. (2020). Foreign ownership and capital structure dynamics. Finance Research Letters, 36(566), 101337.

Eckbo, B. E., & Kisser, M. (2021). The Leverage-Profitability Puzzle Resurrected. Review of Finance, 25(4), 1089–1128.

El Ghoul, S., Guedhami, O., Kim, H., & Park, K. (2018). Corporate Environmental Responsibility and the Cost of Capital: International Evidence. Journal of Business Ethics, 149(2), 335–361.

Esteban-Sanchez, P., de la Cuesta-Gonzalez, M., & Paredes-Gazquez, J. D. (2017). Corporate social performance and its relation with corporate financial performance: International evidence in the banking industry. Journal of Cleaner Production, 162, 1102–1110.

Goss, A., & Roberts, G. S. (2011). The impact of corporate social responsibility on the cost of bank loans. Journal of Banking and Finance, 35(7), 1794–1810.

Goyal, P., Rahman, Z., & Kazmi, A. A. (2013). Corporate sustainability performance and firm performance research: Literature review and future research agenda. Management Decision, 51(2), 361–379.

Gras, D., & Krause, R. (2020). When does it pay to stand out as stand-up? Competitive contingencies in the corporate social performance–corporate financial performance relationship. Strategic Organization, 18(3), 448–471.

Guiral, A. (2012). Corporate social performance, innovation intensity, and financial performance: Evidence from lending decisions. Behavioral Research in Accounting, 24(2), 65–85.

Heryana, T., Septiani, D. H., & Tyastuty, D. R. D. R. (2023). The Speed of Adjustment Capital Structure in The Perspective of Structure-Conduct-Performance Theory. Jurnal ASET (Akuntansi Riset), 15(1), 111–118.

Hilger, J., Hallstein, E., Stevens, A. W., & Villas-Boas, S. B. (2019). Measuring Willingness to Pay for Environmental Attributes in Seafood. Environmental and Resource Economics, 73(1), 307–332.

Ho, L., Bai, M., Lu, Y., & Qin, Y. (2021). The effect of corporate sustainability performance on leverage adjustments. British Accounting Review, 53(5).

Hoepner, A., Oikonomou, I., Scholtens, B., & Schröder, M. (2016). The Effects of Corporate and Country Sustainability Characteristics on The Cost of Debt: An International Investigation. Journal of Business Finance and Accounting, 43(1–2), 158–190.

Huang, K., Sim, N., & Zhao, H. (2020). Corporate social responsibility, corporate financial performance and the confounding effects of economic fluctuations: A meta-analysis. International Review of Financial Analysis, 70(January), 101504.

Jung, S., Nam, C., Yang, D. H., & Kim, S. (2018). Does Corporate Sustainability Performance Increase Corporate Financial Performance? Focusing on the Information and Communication Technology Industry in Korea. Sustainable Development, 26(3), 243–254.

Kim, Y., Park, M. S., & Wier, B. (2012). Is earnings quality associated with corporate social responsibility? Accounting Review, 87(3), 761–796.

Lins, K. V., Servaes, H., & Tamayo, A. (2017). Social Capital, Trust, and Firm Performance: The Value of Corporate Social Responsibility during the Financial Crisis. Journal of Finance, 72(4), 1785–1824.

Mikolajek-Gocejna, M. (2016). Comparative Economic Research. The Relationship Between Corporate Social Responsibility And Corporate Financial Performance – Evidence From Empirical Studies, 19(4), 67–84.

Nyeadi, J. D., Ibrahim, M., & Sare, Y. A. (2018). Corporate social responsibility and financial performance nexus: Empirical evidence from South African listed firms. Journal of Global Responsibility, 9(3), 301–328.

Öztekin, Ö., & Flannery, M. J. (2012). Institutional determinants of capital structure adjustment speeds. Journal of Financial Economics, 103(1), 88–112.

Pagratis, S., Karakatsani, E., & Louri, H. (2020). Are banks using leverage to target return on equity? Evidence from the US and the EU. Oxford Economic Papers, 72(3), 863–892.

Ridwan, R., Rapina, R., & Carolina, Y. (2023). Non-Financial Performance and Cognitive Factors on The Performance. Jurnal ASET (Akuntansi Riset), 15(2), 359–370.

Sassen, R., Hinze, A. K., & Hardeck, I. (2016). Impact of ESG factors on firm risk in Europe. Journal of Business Economics, 86(8), 867–904.

Starks, L. T., Venkat, P., & Zhu, Q. (2017). Corporate ESG Profiles and Investor Horizons. SSRN Electronic Journal.

Stellner, C., Klein, C., & Zwergel, B. (2015). Corporate social responsibility and Eurozone corporate bonds: The moderating role of country sustainability. Journal of Banking and Finance, 59, 538–549.

Tarkom, A., & Huang, X. (2023). Readjusting the speed of leverage adjustment during the COVID-19 pandemic? China Accounting and Finance Review, 25(4), 421–445.

Vishwanathan, P., van Oosterhout, H., Heugens, P. P. M. A. R., Duran, P., & van Essen, M. (2020). Strategic CSR: A Concept Building Meta-Analysis. Journal of Management Studies, 57(2), 314–350.

Yuliyanti, L., & Nugraha, N. (2023). Jurnal ASET (Akuntansi Riset) Corporate Social Responsibility, Company Value, and Company Size in Southeast Asia. Jurnal ASET, 15(2), 335–346.




DOI: https://doi.org/10.17509/jaset.v16i2.64249

Refbacks

  • There are currently no refbacks.


Creative Commons License

Jurnal ASET (Akuntansi Riset) is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License. 

View My Stats Visitor