Corporate social responsibility and stock liquidity across the globe

Abstract

Our paper examines the impact of corporate social responsibility (CSR) on stock liquidity using a worldwide sample of 42,302 firm-year observations from 43 countries over the 2004˗2019 period. We find that firms with greater CSR are associated with higher levels of stock liquidity. This result is robust to employing alternative variable measures, modifying model specifications, altering sample compositions, and controlling for potential endogeneity including a difference-in-differences analysis based on mandatory ESG disclosure regulations that exogenously enhance firms’ CSR performance. Our further investigation suggests that this linkage can be justified by information asymmetry and internal governance channels. Moreover, the effect of CSR on stock liquidity is stronger in countries that exhibit better institutional quality and lower secrecy culture.