Corporate social responsibility and firm default risk in the Eurozone: a market-based approach

Mohamad H. Shahrour, Isabelle Girerd-Potin () and Ollivier Taramasco ()
Additional contact information
Isabelle Girerd-Potin: CERAG - Centre d'études et de recherches appliquées à la gestion - UGA - Université Grenoble Alpes
Ollivier Taramasco: CERAG - Centre d'études et de recherches appliquées à la gestion - UGA - Université Grenoble Alpes, Grenoble INP ENSIMAG - École nationale supérieure d'informatique et de mathématiques appliquées - UGA - Université Grenoble Alpes - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - UGA - Université Grenoble Alpes

Post-Print from HAL

Abstract: Purpose The purpose of this study is to examine the relationship between corporate social responsibility (CSR) and the default risk level of firms operating in the Eurozone and how CSR can provide insurance-like protection during financial/economic downturns. Design/methodology/approach Based on prior empirical studies and by integrating the insights of different theories, this study proposes a framework linking CSR, firm default risk and corporate financial performance to explain firms' social behavior that can trigger default risk determinants (e.g. cost of capital, leverage, sales level) directly or indirectly. The authors use a panel regression approach. Findings The results support the mitigating effect of CSR on firm default risk. This effect is higher during a financial crisis, suggesting that CSR could provide insurance-like protection during economic downturns. These results hold even after using an alternative risk measure. Granger causality test results strongly suggest that reverse causality is not a concern. An instrumental variable approach is proposed to deal with potential endogeneity issues. Originality/value While other studies examine the CSR–firm default risk relationship in US samples, this study focuses on the Eurozone. The novelty of this work is based on its sample and how financial crises are addressed within this relationship. Insurance-like protection concerns both negative announcements and periods (e.g. financial crises, recessions). The study's results are useful for investors and risk managers who intend to manage default risk in their portfolios or firms.

Keywords: Default probability; Corporate financial performance; Firm default risk; Corporate social responsibility (search for similar items in EconPapers)
Date: 2021-02-08
New Economics Papers: this item is included in nep-bec
Note: View the original document on HAL open archive server: https://hal.science/hal-03198467v1
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Published in Managerial Finance, 2021, 47 (7), pp.975-997. ⟨10.1108/mf-02-2020-0063⟩

Downloads: (external link)
https://hal.science/hal-03198467v1/document (application/pdf)

Related works:
Working Paper: Corporate Social Responsibility and Firm Default Risk in the Eurozone: A Market-Based Approach (2021)
Working Paper: Corporate Social Responsibility and Firm Default Risk in the Eurozone: A Market-Based Approach (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03198467

DOI: 10.1108/mf-02-2020-0063

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().