Corporate social responsibility performance, financial distress and firm life cycle: evidence from Australia

Abstract

This study examines the association between corporate social responsibility (CSR) performance and financial distress and additionally the moderating impact of firm life cycle stages on that association. Based on a sample of 651 publicly listed Australian firm‐years’ data covering the 2007–2013 period, our regression results show that positive CSR activity significantly reduces financial distress of the firm. In addition, the negative association between positive CSR performance and financial distress is more pronounced for firms in mature life cycle stages. Our results are robust to alternative proxy measures of financial distress, CSR performance and life cycle stages.

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

“…Although firms seem to engage in environmental practices (in response to environmental policies and regulations) to increase social legitimacy, they appear to enjoy “insurance‐type protection” of such practices in the events of financial mishaps (Godfrey et al, ; Hoi et al, ; Moser & Martin, ) and to achieve better financial outcomes and increased wealth (efficiency view). Previously, Al‐Hadi et al () used different measurement models of financial distress (Almeida & Campello, ; Altman, ; Berger et al, ) and found similar impact of social performance on financial distress in the context of Australian firms. However, our evidence further extends and adds to the literature by presenting the mitigating effect of environmental performance on financial distress with employment of newly developed distress model for Chinese firms (Altman et al, ; Zhang et al, ).…”

“…In Equation , we introduced our moderating variable for TMT characteristics (i.e., TMT_C ) and generated interaction terms between EN_P and TMT_C (i.e., EN_P*TMT_C ) to measure the moderating impact of TMT features on the environmental performance–financial distress relationship. We followed previous studies (Al‐Hadi et al, ; Gross, ; Lau et al, ) to employ firm characteristics, as control variables in our analyses. These are included in Equations and as CONTROLS , which refer to TMT size, firm size, quick ratio, net profit margin, leverage, cash to assets ratio, loss, industry, and year dummies.…”

“…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. Al‐Hadi et al () studied the corporate social responsibility (CSR) and financial distress nexus by empirically examining 651 Australian listed firms from 2007 to 2013 period. Their findings reveal that positive engagement in social activities significantly decreases the financial distress of Australian firms.…”

“…Consequently, a limited number of studies have been conducted in this area of business strategy and environmental research (Gross, ; Haque & Ntim, ; Price & Sun, ; Tang, Walsh, Lerner, Fitza, & Li, ). For instance, some studies have highlighted that environmental or social performance can (a) reduce financial risk and bad reputation (Minor & Morgan, ; Moser & Martin, ); (b) diminish stakeholders' negative decisions about the firm (Godfrey et al, ); and (c) mitigate potential bankruptcy or financial distress (Al‐Hadi, Chatterjee, Yaftian, Taylor, & Monzur, ; Gross, ). However, these studies suffer from a number of limitations.…”

“…First, we extend the risk management perspective to examine the impact of environmental performance on financial distress in China. This study uniquely employs the financial distress model of Altman et al (2007) for Chinese market instead of relying on the previous models (Almeida & Campello, 2007;Altman, 1968;Berger et al, 1996) used in the developed markets (e.g., Al-Hadi et al, 2017;Gross, 2009). We contribute to the literature by arguing that these models (mentioned previously) are inappropriate in the context of Chinese firms due to the wide differences in the financial, accounting, and reporting structure and generalizability of the results will be compromised (as discussed by Altman et al, 2007;Zhang et al, 2010).…”