Corporate Social Responsibility and Hedging Policies

Abstract

This paper delves into the primary association between corporate social responsibility (CSR) and hedging strategies. By employing textual analysis of 10-K filings to measure corporate hedging, we demonstrate that firms with higher levels of CSR are more inclined to engage in hedging practices and with greater intensity. We also show that a reduction in cash flow volatility and a decrease in the cost of debt are potential channels through which CSR firms increase hedging. Furthermore, the influence is more pronounced when robust corporate governance mechanisms are in place. Our estimates pass a number of endogeneity tests, including the entropy balancing method and instrumental variables approach that takes into account political and geographic considerations. Results remain robust to alternative measures and dimensions of CSR and hedging.