Corporate social responsibility engagement of financially distressed firms and their bankruptcy likelihood

K.C. Lin and Xiaobo Dong

Advances in accounting, 2018, vol. 43, issue C, 32-45

Abstract: Extant literature suggests that corporate social responsibility (CSR) accrues social capitals that buffers business risk. We extend this literature by documenting that firms with higher prior history of positive CSR engagement are less likely to file for bankruptcy when they are in deep financial distress and are more likely to experience accelerated recovery from distress. Furthermore, we decompose social capitals accrued from prior CSR engagement into moral capital and exchange capital. The results show that moral capital reduces bankruptcy likelihood when the firm grows larger. On the other hand, exchange capital mitigates bankruptcy likelihood when the firm relies on intangible assets to operate and when firms operates in more litigious business environment.

Keywords: Corporate social responsibility; Corporate social performance; Bankruptcy likelihood; Financial distress; Distress recovery; Risk management; Exchange capital; Moral capital; Relationship-based intangible assets; Litigation; KLD; MSCI; MSCI environment social government; ESG (search for similar items in EconPapers)
JEL-codes: G32 G33 G34 M14 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:advacc:v:43:y:2018:i:c:p:32-45

DOI: 10.1016/j.adiac.2018.08.001

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