6 DISCUSSION AND CONCLUSION
6. DISCUSSION AND CONCLUSION 17 constraints measure, which takes into account the firms’ ability to finance projects with internal
funds. Overall, the results provide support for hypothesis2, the relationship is moderated by the level of financial constraints firms face prior to the act. The presence of an effect for external and the lack of effect when using the internal constraints measure provides further support for the use of CSR as a signaling tool.
As a credible information provider, mainstream media presents a highly viable channel for firms to communicate with stakeholders and other actors on capital markets. The media plays an important role in reducing informational asymmetries for investors through increased trans-parency in firms’ actions (Du et al.,2010). However, previous research has shown that the media has a strong negative bias (Soroka,2006; Niven,2001) and preference for bad over good news.
Positive media coverage provides reputational benefits (Gamache et al.,2019) and negative me-dia coverage translates into reputational penalties (Bednar et al.,2015). Thus, media attention in general and negative media attention in particular, can affect firms’ decisions. We thus argued that overall and negative media attention would moderate the relationship between improved ac-cess to finance and firms’ CSR engagement. Results from a DiD estimation with moderators show evidence for the moderating role of both overall and negative media attention. Firms with higher levels of media coverage increase their CSR engagement more than firms with lower media cov-erage. Using negative media coverage as the moderating variable yields similar results. With this finding, we contribute to the literature on the strategic use of CSR as a signaling instrument (e.g.
Cheng et al., 2014; Jones et al.,2001). Our findings further contribute to the stream of research studying the use of CSR as a signaling tool (Flammer,2020; Cheng et al.,2014; Su et al., 2016).
Results from the estimation accounting for firms’ prior level of media attention (total and nega-tive) show that CSR is indeed a costly signal. Repatriating firms with high overall and negative media attention prior to the act increased their CSR engagement due to the exogenously lowered cost of financing. If CSR were not a costly engagement, firms would use it even in the absence of the AJCA on-off tax reduction. However, we find that the CSR engagement for firms with high incentives to counteract unwanted media attention increases after improving their access to finance.
Finally, our results contribute to the vibrant literature studying the drivers of firms’ CSR en-gagement (e.g., Rubio et al.,2016; Shen et al.,2016; Flammer,2014; Ioannou et al.,2012). We add to this stream of literature by providing causal evidence that improved access to finance (lower internal costs of financing) affects firm-level engagement in CSR. Establishing causal evidence for the direction of the link between firm financial performance and CSR is imperative to our under-standing of why firms engage in CSR. Underunder-standing the drivers is crucial to underunder-standing the value of CSR, especially as CSR is emerging as a new investment factor.
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