Corporate social responsibility and dynamic liquidity management

We introduce choices on corporate social responsibility to financially constrained firms facing uncertainty from different time horizons. Implementing corporate goodness incurs monetary costs in exchange for long-run non-pecuniary benefits, such as higher secular growth and implicit insurance for being trustworthy. Generally, cash reserve positively predicts corporate virtue; in turn, higher corporate goodness strengthens the precautionary-saving motive for external financing and payout decisions. Less-constrained firms benefit from conducting corporate goodness, while their more-constrained peers enhance firm value by optimally prioritizing the shortterm benefits instead since inefficient liquidation generates acute "fight or flight" syndrome. Moreover, we investigate various decisive factors behind corporate goodness optimality, such as the firm's prospects, financing costs, and transparency. Finally, it turns out that liquidity plays a vital role in the interaction between goodness-induced insurance and derivative hedging.