Equity vs. Credit: How Financial Markets Shape Corporate Social Responsibility 

Mihail Miletkov and Viktoriya Staneva

How do financial markets influence corporate social responsibility (CSR)? 

That’s the question Mihail K. Miletkov, associate professor of finance, and Viktoriya Staneva, assistant professor of finance, explore in their recent publication in the Journal of Business Ethics. 

Their study examines the relationship between equity and credit market development and CSR across 61 countries from 2002 to 2022. Using a fixed-effects identification strategy based on the seminal work of Rajan and Zingales (1998), they find that industries more reliant on external financing demonstrate significantly better CSR performance in countries with well-developed equity markets—but worse CSR performance in those with more developed credit markets. 

These findings suggest that while equity market development can serve as a catalyst for CSR, ultimately improving environmental and social outcomes worldwide, credit market development may discourage CSR investments, particularly in industries highly dependent on external financing. 

Further analysis indicates that ethical and social considerations—beyond purely financial factors—moderate the relationship between financial market development and CSR. The study provides key insights into how financial market structures and institutions can be aligned with global sustainability goals and responsible corporate behavior.