Does corporate social responsibility reduce financial distress risk? |
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| Institution: | 1. University of Oklahoma, United States;2. King Fahd University of Petroleum and Minerals, Saudi Arabia;3. Second University of Naples, Italy;4. University of Naples Parthenope, Italy;5. Kingston University of London, United Kingdom;1. Department of Accounting, La Trobe University, Australia;2. Department of Finance, La Trobe University, Australia;1. Department of Economics, University of Reading, Reading, RG6 6UR, UK;2. Corresponding author. Department of Economics, Birmingham Business School, University of Birmingham, Birmingham, B15 2TT, UK;3. Western University, London, Ontario, N6A 5C2, Canada;4. Sheffield University Management School, University of Sheffield, Sheffield, S10 1FL, UK |
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| Abstract: | This paper examines how corporate social responsibility (CSR) affects the level of financial distress risk (FDR). Using a sample of 1201 US-listed firms during 1991–2012, our results indicate that firms with higher CSR levels have lower FDR, suggesting that a better CSR performance makes firms more creditworthy and have better access to financing, which is rewarded with less financial defaults. This finding is robust to using alternative proxies of FDR, to controlling for potential endogeneity, and is mainly driven by the community, diversity, employee relations, and environmental dimensions of CSR. Moreover, this relationship is more prevalent in firms with strong governance mechanisms and high product market competition. It is also more exacerbated for less distressed firms and during non-crisis periods. Overall, our findings suggest that the adoption of CSR practices comes with less distress and default risks, likely leading to a more attractive corporate environment, better financial stability and more crisis-resilient economies. |
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| Keywords: | Corporate social responsibility Financial distress risk Default Z-score G30 G33 G34 M14 |
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