Rethinking capital structure decision and corporate social responsibility in response to COVID-19

Abstract

COVID-19 has severely constricted global economic activities. This paper examines the joint effect of capital structure and corporate social responsibility (CSR) activities on firm risk during the COVID-19 pandemic. We find that firms having excessive debt beyond the optimal level experienced high firm risk during the pandemic and the effect is more prevalent among firms with poor CSR performance. In contrast, firms with a debt level below the optimum are self-protected regardless of their CSR practices. Our study provides businesses with insights on post-pandemic directions of capital structure and CSR policies to build up sustainability and resilience in a volatile market.