financial distress; corporate social responsibility
International Academy of Business Disciplines
Quarterly Review of Business Disciplines, 6(3)
Does doing good to society make firms less likely to have financial trouble? This paper looks at the benefit of corporate social responsibility (CSR) and examines whether firms’ CSR engagement affects their chance of falling into financial distress. After analyzing a broad U.S. database spanning 25 years from 1991 to 2015, we find that CSR engagement indeed reduces the likelihood of firms falling into financial distress, and the results are statistically robust and economically significant. Further, we find the impact of CSR on the likelihood of financial distress is more pronounced in economic downturns and for firms with high levels of international involvement. Collectively, our result suggests that CSR lowers financial distress risks by improving firmstakeholder relationships, which enhances our understanding of the stakeholder view of CSR with longitudinal approach and contextual consideration of firms.