Give a plum in return for a peach: The effect of entrepreneurial informal financing on environmental corporate social responsibility

Abstract

Newswise — Private enterprises in emerging economies, such as China, heavily rely on informal financing (IF) due to their small firm-specific financial constraints. This study sheds light on the incongruent findings concerning the relationship between IF and entrepreneurial environmental corporate social responsibility (ECSR). Based on data from 7961 privately owned firms in China from 2006 to 2012, IF can positively affect their ECSR investment, while its influence becomes adverse beyond a certain threshold, exhibiting an inverted U-shaped relationship. We introduce the inclusion of entertainment expenditure and the appointment of a professional CEO to moderate the nonlinear link. The entertainment expenditure will steepen the inverted U-shaped curve, while the out-family CEO will flatten the curve. We add to the literature on IF and ECSR by illustrating how IF matters among privately owned firms where initial capital heavily depends on social capital.