Does board independence moderate the relationship between corporate social responsibility and choice of capital structure? Evidence from Saudi Arabia

Although corporate social responsibility (CSR) has become increasingly significant in shaping corporate decisions, the impact of CSR disclosure on capital structure (CS) choice remains poorly understood. This study examines whether CSR disclosure affects firms’ choice of CS. It also considers the potential moderating effect of board independence (BIND) on this relationship. Using 828 firm-year observations of Saudi-listed firms from 2016 to 2021, we find that firms with higher CSR disclosure rely more on internal financing. With respect to external financing, greater CSR disclosure is associated with increased use of debt but reduced reliance on equity. BIND strengthens the relationship between CSR and both internal and equity financing, but weakens its association with debt financing. These findings imply that firms with highly independent boards place greater emphasis on internal financing and rely more on equity. These findings are robust across several regression specifications and alternative measures. This study contributes to the literature by providing new evidence on how CSR disclosure shapes different components of capital structure and by highlighting the moderating role of BIND in corporate financing decisions, with important implications for policymakers seeking to promote sustainable finance in line with Saudi Arabia’s Vision 2030.