The Impact of Corporate Social Responsibility on Default Risk: Empirical evidence from US Firms

Muhammad Suhail Rizwan (), Asifa Obaid and Dawood Ashraf
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Muhammad Suhail Rizwan: National University of Science & Technology, Islamabad
Asifa Obaid: National University of Science & Technology, Islamabad

Business & Economic Review, 2017, vol. 9, issue 3, 36-70

Abstract: This paper investigates the risk mitigation effects of engagement in corporate social responsibility (CSR) activities by using data from 1,119 non-financial US firms between 2000 and 2012. We find evidence that firms with higher CSR activity scores experience lower probability-of-default. However, the credit mitigation effect of CSR is more pronounced with activities related to primary stakeholders (employee relations, product quality, diversity, and governance). Engagement in secondary (institutional) CSR activities (environmental and community related) are not significant in this relationship. We found that the dotcom crisis (2001-02) and the financial crisis (2007- 08) substantially increased default probabilities. This study provides robust evidence that engagement and disclosure of CSR-related activities reduces credit risk suggesting that both management and investors can use socially responsible behavior as a pricing factor.

Keywords: CSR; Probability-of-default (PD); principal component analysis (PCA); beta regression (search for similar items in EconPapers)
JEL-codes: G10 G21 G32 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:bec:imsber:v:9:y:2017:i:3:p:36-70

DOI: 10.22547/BER/9.3.2

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