Corporate Social Responsibility Disclosure and Cash Holdings

The demand for corporate social responsibility (CSR) disclosure has steeply risen over the last two decades, pushing many jurisdictions to implement mandatory non-financial reporting. Exploiting the European non-financial reporting directive, we study how companies change their cash management policies in response to additional and mandatory CSR disclosure requirements. We find that firms increase cash holdings following the enactment of the directive, in line with the theory of cash being held for precautionary motives. The growth in cash holdings is not equally distributed, but it is less pronounced for firms that are experiencing a high-investment phase. Our findings reveal that mandatory non-financial disclosure can have relevant real effects.