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

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  • Lin, K.C.
  • Dong, Xiaobo

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.

Suggested Citation

  • Lin, K.C. & Dong, Xiaobo, 2018. "Corporate social responsibility engagement of financially distressed firms and their bankruptcy likelihood," Advances in accounting, Elsevier, vol. 43(C), pages 32-45.
    • Handle: RePEc:eee:advacc:v:43:y:2018:i:c:p:32-45
    DOI: 10.1016/j.adiac.2018.08.001
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    13. K. Liagkouras & K. Metaxiotis & G. Tsihrintzis, 2022. "Incorporating environmental and social considerations into the portfolio optimization process," Annals of Operations Research, Springer, vol. 316(2), pages 1493-1518, September.
    14. Ling, Aifan & Li, Jinlong & Zhang, Yugui, 2023. "Can firms with higher ESG ratings bear higher bank systemic tail risk spillover?—Evidence from Chinese A-share market," Pacific-Basin Finance Journal, Elsevier, vol. 80(C).
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    More about this item

    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;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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