The role of financial flexibility in corporate cash donations

Abstract

The research on finance has established that firms with greater financial flexibility can navigate the financial crises caused by negative external factors. In this study, we investigate how financial flexibility influences a firm's cash donations. Our findings show that financially flexible firms are not only more likely to make cash donations but also tend to donate more. The positive effect of the firm's financial flexibility on cash donations is weakened when firms have higher R&D expenditures, as they tend to prioritize saving cash over making donations due to the increased uncertainty about the future. Our results further indicate that donations made by financially flexible firms tend to shrink the positive impact of donations on ESG performance. The results show that charity-related expenses may crowd out other expenses within the ESG activities.