The Impact of Free Cash Flow on the Firms Level of Social Responsibility: the Moderating Role of Firm Leverage

Abstract

In recent years companies have significantly increased the amount of resources allocated to corporate social responsibility (CSR). The present paper analyzes the impact of free cash flow on CSR. The paper argues that the availability of free funds, not allocated for other purposes, is a motivational force to invest into CSR. In addition, the study examines the moderating role of firm leverage. It shows that firm leverage negatively moderates the relation between FCF and CSR. The data for 1628 US companies between years of 2005 and 2010 has been employed. Significant results have been obtained both for the positive effect of FCF on CSR and the interacting negative effect of firm leverage.