A company increases long-term Corporate Social Responsibility (CSR) spending. What is the most likely financial effect?

💡 Explanation:

High Corporate Social Responsibility (CSR) spending, while reducing immediate cash flows (making option A and B incorrect in the short term), is strongly associated with long-term benefits. By establishing a positive reputation with stakeholders and the community, a company can reduce its risk of legal issues, boycotts, and regulatory fines. This reduction in non-financial/business risk translates into a lower overall risk profile, which in turn leads to a lower cost of capital (both equity and debt) and higher firm valuation in the long run.