Hypothesis- Firm Liquidity Risk (cash flow) mediates the relationship between Corporate Social Responsibility (CSR) and Corporate Financial Performance (CFP)

Hypothesis- Firm Liquidity Risk (cash flow) mediates the relationship between Corporate Social Responsibility (CSR) and Corporate Financial Performance (CFP)

Because of Mix results about CSR- CFP relationship (direct), the understanding of mediating variable is warranted.  Liquidity Risk as mediating variable.

Argument flow

Which Mediating Variable?

• Lots of risk factors available that are affected by CSR; market, liquidity, operation, credit.
• Choose Liquidity Risk

Why Liquidity Risk is important?

• Life of Firm depends upon liquidity instead of profit- “Cash is King”
• Even profitable firms can go out of business, the firm with superior cash base survives
• Timely Payments and fulfilling obligations
• Opportunities to take profitable venture
• OTHERS….

How does CSR influence liquidity?

• Awareness and Reputation
• Customers attachment and Revenue Increase
• CSR high bond rating
• Minimize cost of capital
• OTHERS……

Therefore, CSR helps minimize liquidity risk.

How does this reduction in liquidity risk better for firm valuation?

• Profit but no cash is not good – No insolvency issues
• Reputation increases intangible characteristics like Goodwill, which adds premium to value
• Better business opportunity
• Low cost of capital high benefit
• Better earnings and stable cash flow.

Therefore, Liquidity risk (CF) mediates the relationship between CSR and CFP.