Financialisation and Corporate Social Responsibility in the EU non-financial sector

The process of financialisation has enhanced the tendency through short-term behavior both among investors and non financial companies. At firm level, such a myopic focus has implications for cost-of-capital issues in terms of corporate incentive for the development of management policies and attitudes aimed at procuring greater near-future financial returns at the expense of even better long-term results. In this framework, CSR can play an important role, as a positive relation between CSR and corporate financial performance, together with a business model characterized by a lower level of financialisation, can represent a vehicle to increase the demand of a stock characterized by high socially responsible standard, which, in turns, would sustain its value, therefore providing incentives to managers to further strengthen socially responsible behavior of corporations, inducing a virtuous circle which may have a growingly positive effect on the sustainability of firms and of the economy as a whole. The paper addresses the abovementioned issues and presents an empirical analysis of the the impact of CSR on firms’ financial structure, as financial leverage is unanimously considered among the features mostly affected by the growing weight of finance in the economy. Considering a sample of European non financial companies included in the Dow Jones Sustainability Stock Index in the period 2001-2013, our results show a negative relationship between CSR and firm’s leverage, supporting the idea that higher CSR standards might contribute in reducing financial riskiness.