On the relation between credit market disruption and corporate social responsibility

We exploit the staggered interstate banking and branching deregulation in the US to examine the causal impact of bank competition on corporate socially responsible (CSR) activities. Using financial and CSR practice information of 3,436 unique US firms for 1991-2005, we find strong and robust evidence that bank deregulation significantly and negatively affects CSR activities. Firms operating in high margin industries with low market power and financially constrained firms in external finance dependent industries particularly show a negative relation between deregulation and CSR activities. Additionally, firms with excessive leverage and firms that are more exposed to out of state banks tend to experience a substantial decrease in CSR activities. Overall, our findings imply that banking deregulation has led non-financial firms to be more concerned about protecting shareholder interests at other stakeholders' expense. Our results are robust to the use of alternative empirical specifications and CSR measures.