Does corporate social responsibility engagement benefit distressed firms? The role of moral and exchange capital

Extant literature supports the view that Corporate Social Responsibility (CSR) engagement could potentially act as a risk mitigation device. We extend this literature to address the issue of whether CSR engagement could benefit firms which are already in bankruptcy. A unique feature of our empirical tests is the decomposition of CSR into two components – moral capital and exchange capital. We find that moral capital is associated with the likelihood of a distressed firm emerging from bankruptcy. Further, moral capital appears to reduce the number of days a distressed firm spends in bankruptcy. Our empirical evidence also suggests that moral capital increases the likelihood that a distressed firm successfully negotiates a pre-packaged agreement with its creditors. Finally, our empirical results indicate that the exchange capital component of CSR is positively related to the probability of procuring debtor-in-possession financing by a distressed firm whilst in bankruptcy. Overall, our results imply that both moral and exchange capital components of CSR play a role in facilitating a firm's emergence from bankruptcy.