The effect of mandatory corporate social responsibility on firm's cash holdings

This study investigates the effect of mandatory Corporate Social Responsibility (CSR) disclosure on corporate cash holdings in China. We use the enactment of a policy mandating a group of firms to disclose their CSR activities as a quasi-natural experiment and find that mandatory CSR disclosure can significantly reduce corporate cash holdings. We identify three channels and their corresponding mechanisms through which mandatory CSR disclosure may affect corporate cash holdings. Mandatory CSR disclosure decreases corporate cash holdings by alleviating financing constraints, improving corporate governance and increasing risk-taking capacity. Further analysis indicates that the reduction in cash holdings due to mandatory CSR disclosure improves firm value.