This study analyses the cash flow sensitivity of the Corporate Social Responsibility (CSR) in the presence of managerial optimism of Chinese listed firms from 2009-2016. Using the earning forecast error, we introduce and construct a dichotomy variable as a proxy of managerial optimism to show the impact of cash flow on CSR in the presence of managerial optimism biases. The cash flow sensitivity under the managerial optimism develops the significant positive association with CSR in the whole sample. While investigating the cash flow sensitivity in constrained and less-constrained firms, we find that cash flows sensitivity is more strongly associates with CSR in constrained firms than the less-constrained firms. The study also finds that board characteristics play an essential role to reduce the cash flow sensitivity of the CSR investment.
