Mandatory CSR expenditure and stock market liquidity

Partha P. Roy, Sandeep Rao, Min Zhu

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We investigate the nexus between corporate social responsibility (CSR) and firms' stock market liquidity. Using actual firm-level CSR expenditure data and a quasi-natural experiment setup of a mandated CSR regulation in India, we find that firms complying with the mandate experience significantly higher stock market liquidity, relative to non-CSR firms in the post-CSR mandate period. This effect seems to be more pronounced among CSR firms not affiliated to business groups, with concentrated promoter ownership, with low institutional ownership, with foreign sales and having operations in multiple locations. Further, we find that firms spending more on education and healthcare projects as part of their mandatory CSR engagement have higher stock market liquidity. Our results are in line with the conjecture that mandatory CSR regulation could lead to reduced information asymmetry and improved social and reputational capital, and thus improve the stock market liquidity of CSR firms. Finally, we show that mandated CSR firms, having superior stock market liquidity, obtain higher market valuations in the long run.
Original languageEnglish
Article number102158
Number of pages29
JournalJournal of Corporate Finance
Early online date11 Jan 2022
Publication statusPublished - 28 Feb 2022


  • CSR
  • stock market liquidity
  • mandatory CSR law
  • social capital
  • ESG


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