Capital Structure as a Financial Constraint in the CSR–Performance Nexus: Evidence from Large UK Firms

Authors: Muhammad Arslan, Zubair Hussain, Ihtisham Ullah, Naeem Raza
Journal:  Emirati Journal of Business, Economics and Social Studies
Volume: Vol 5 Issue 1
Keywords: Corporate Social Responsibility, Capital Structure, Financial Constraints, Firm Performance, UK Firms

Abstract

This study re-examines the relationship between Corporate Social Responsibility (CSR) and firm performance by introducing capital structure not merely as a moderator, but  as a financial constraint that conditions the efficiency of CSR  investments. While prior literature largely assumes that  higher leverage uniformly amplifies or weakens CSR outcomes, this paper advances a more nuanced argument: CSR generates performance gains only when firms operate within an optimal  financing range. Using panel data from FTSE 100 firms over 2019–2023 and fixed-effects estimation, the findings confirm a  positive  CSR–performance relationship. However, the  interaction analysis reveals that capital structure significantly  conditions this relationship, suggesting that excessive  leverage constrains the strategic and reputational returns of CSR activities. By reframing capital structure as a constraint  rather than a neutral moderator, this study contributes to  CSR–finance literature and offers implications for sustainable  corporate financing strategies in developed markets.