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

Gupta, Kartick; Krishnamurti, Chandrasekhar

doi:10.1016/j.pacfin.2016.10.010

Cited by 51 publications

(58 citation statements)

References 42 publications

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“…Gross () found a significant impact of ratings of socially responsible firms in the determination of the firm distress level by examining data from Kinder, Lydenberg, and Domini for 650 companies from the United States. Gupta and Krishnamurti () found that social and environmental engagement help firms, which are already in bankruptcy stage in the United States. They found that moral and exchange capitals increase the firm's chances of recovering from the bankruptcy, and the ability of moral capital to take the firm out of the adverse situation is more than exchange capital.…”

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

“…Accordingly, this risk shielding nature of corporate social and environmental performance is not just limited to cost of equity capital (Dhaliwal, Li, Tsang, & Yang, 2014;El Ghoul et al, 2016;La Rosa, Liberatore, Mazzi, & Terzani, 2017), credit risk (Stellner, Klein, & Zwergel, 2015), credit ratings (Attig, El Ghoul, Guedhami, & Suh, 2013), and tax avoidance (Hoi, Wu, & Zhang, 2013;Huseynov & Klamm, 2012) but also has been extended to financial distress (Al-Hadi et al, 2017;Gross, 2009;Gupta & Krishnamurti, 2016).…”

Section: Environmental Performance and Financial Distressmentioning

confidence: 99%

“…According to the risk management perspective (Godfrey et al, ; Moser & Martin, ), corporate social performance acts as a risk‐mitigating tool by providing an insurance coverage and changing the firm's adverse scenario into a favorable one. Accordingly, this risk shielding nature of corporate social and environmental performance is not just limited to cost of equity capital (Dhaliwal, Li, Tsang, & Yang, ; El Ghoul et al, ; La Rosa, Liberatore, Mazzi, & Terzani, ), credit risk (Stellner, Klein, & Zwergel, ), credit ratings (Attig, El Ghoul, Guedhami, & Suh, ), and tax avoidance (Hoi, Wu, & Zhang, ; Huseynov & Klamm, ) but also has been extended to financial distress (Al‐Hadi et al, ; Gross, ; Gupta & Krishnamurti, ).…”

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

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Environmental policy, environmental performance, and financial distress in China: Do top management team characteristics matter?

et al. 2018

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This study investigates the effect of environmental performance that is driven by good environmental policies, regulations, and management on firm's financial distress and, consequently, ascertains the extent to which top management teams' (TMTs') characteristics can moderate the environmental performance–financial distress nexus in China using 749 firms over the 2009–2014 period (i.e., generating over 3,000 individual observations). Our findings are twofold. First, our results indicate that increased environmental performance that is driven by good environmental policies tends to strategically reduce the extent of firm financial distress. Second, this nexus is moderated by TMT gender diversity, foreign exposure, and political connection. We interpret our findings within neo‐institutional, upper echelons, and risk management theoretical perspectives. The findings are robust to the use of alternative measures of financial distress, estimation techniques, and endogeneity problems.

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Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

Section: Environmental Performance and Financial Distressmentioning

confidence: 99%

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

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Environmental policy, environmental performance, and financial distress in China: Do top management team characteristics matter?

et al. 2018

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“…Since CSR reduces resource constraints, it supports higher levels of M&A. Fourth, gains from CSR engagement arise due to risk reduction (Bouslah et al, 2013;Gupta and Krishnamurti, 2018). However, Furfine and Rosen (2011) posit that domestic mergers on average result in an increase of default risk of acquirers.…”

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

Evidence on the trade-off between corporate social responsibility and mergers and acquisitions investment

Krishnamurti

Shams

Chowdhury

2020

Australian Journal of Management

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In this article, we investigate whether there is a trade-off between corporate social responsibility (CSR) and mergers and acquisitions (M&A) investments. Consistent with conflict resolution view of stakeholder theory, our results document a negative relationship between CSR scores and M&A activity. We further show that the tendency of CSR firms’ low engagements in M&A investmen ts is valid only for firms with no slack. We also find that firms choosing to trade off pay a lower bid premium to targets to create value for acquiring shareholders. These findings are robust to several alternative proxies and endogeneity tests. JEL Classification: G32, G34

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“…Subsequently, studies concentrate on the process through which CSR affects firm performance and offer multiple interpretations (Kim et al, 2012;Lins et al, 2017;Bae et al, 2018). Such research indicates that greater focus on CSR will reduce the likelihood of financial distress (Al-Hadi et al, 2016;Gross, 2009), improve credit score (Attig et al, 2013) and perform positive role in the event of insolvency (Gupta and Krishnamurti, 2016). Despite the emphasis on CSR by researchers since long, limited studies are available that explore the CSR in term of firms' risk profile (Hsu and Chen, 2015).…”

Section: Introductionmentioning

confidence: 99%

The impact of corporate social responsibility on financial distress: evidence from developing economy

Farooq

Noor

2021

PAR

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Purpose This study aims to explore the role of corporate social responsibility (CSR) on the likelihood of financial distress for a sample of 139 Pakistan Stock Exchange (PSX) listed firms throughout 2008–2019. Design/methodology/approach The dynamic generalized method of moments (GMM) estimator is used to examine the impact of CSR on financial distress. The investment in CSR is measured through a multidimensional financial approach which comprises the sum of the contribution made by the company in the form of charitable donation, employees’ welfare and research and development, while the Altman Z-score is used as an indicator of financial distress. The higher the Z-score, the lower will be the probability of financial distress. Findings The authors find a significant positive impact of CSR on financial distress in GMM model. This finding is consistent with the shareholder view and over-investment hypothesis of CSR as management makes an investment in CSR to get personal benefits, which resultantly leads the firm toward financial distress state. Further, this positive relationship remains present for firms having strong involvement in foreign business through exports. Research limitations/implications Like other studies, the present study is not free from limitations. First, financial firms are skipped from the sample, although literature witnesses a lot of studies highlight the financial firms’ commitment to achieving CSR goals. Second, financial distress occurs in different stages, and this study fails to establish a linkage between CSR engagement at different stages of financial distress. In the future, researchers can make valuable addition by covering these missing links in present studies. Practical implications Findings suggest several practical implications. For policymakers, they should encourage firms to adopt more socially responsible behavior as it not only prevents them from distress but also comes with better investment behavior, minimize bankruptcies and make economies more strong and stable. Second, results suggest corporate managers emphasize socially responsible behavior as its benefits are beyond the “societal benefits” as it lessens financial distress through lower cost of debt, lesser financial constraints and reduced cost of information asymmetry, and it minimizes the cost of capital. Lastly, investors make risk premium assessments related to future earnings by determining the likelihood of financial distress in the future. Originality/value The study extends the body of existing literature on CSR and the likelihood of financial distress in Pakistan, which is according to the best knowledge of the authors, not yet studied before. The results suggest that policymakers may pay special attention to the quality of CSR while predicting corporate financial distress.

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

Cited by 51 publications

References 42 publications

Environmental policy, environmental performance, and financial distress in China: Do top management team characteristics matter?

Environmental policy, environmental performance, and financial distress in China: Do top management team characteristics matter?

Evidence on the trade-off between corporate social responsibility and mergers and acquisitions investment

The impact of corporate social responsibility on financial distress: evidence from developing economy

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