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Does local government debt affect corporate social responsibility? Evidence from China

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  • Wan, Peng
  • Chen, Xiangyu
  • Ke, Yun
  • Dong, Wang

Abstract

We examine the influence of local government debt on local firms' corporate social responsibility (CSR). Using a sample of Chinese public companies, we find that local government debt is negatively associated with local firms' CSR performance, indicating that government debt financing behaviour dampens firms' CSR engagement. Furthermore, the adverse influence of local government debt on CSR is particularly evident for non-state-owned enterprises and low-leverage firms. This article makes a contribution to CSR research by furnishing empirical evidence about the nexus between government debt and firms' CSR performance. Our study indicates that a company conditions social responsibility decisions on the availability of external financing resources, and local governments should be aware that excessive government debt generates an adverse impact on firms’ CSR fulfillment. This study is the first to explore the link between government debt and CSR, and the results help enrich our understanding of the determinants of CSR and the consequences of local government debt.

Suggested Citation

  • Wan, Peng & Chen, Xiangyu & Ke, Yun & Dong, Wang, 2024. "Does local government debt affect corporate social responsibility? Evidence from China," International Review of Economics & Finance, Elsevier, vol. 89(PB), pages 334-348.
    • Handle: RePEc:eee:reveco:v:89:y:2024:i:pb:p:334-348
    DOI: 10.1016/j.iref.2023.10.022
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