Does corporate social responsibility reduce financial distress risk?

Boubaker, Sabri; Cellier, Alexis; Manita, Riadh; Saeed, Asif

doi:10.1016/j.econmod.2020.05.012

Cited by 279 publications

(245 citation statements)

References 72 publications

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“…In addition, we test the CSP-BL relationship for times of crisis (i.e., the financial crisis; period from 2007 to 2009) and find that a higher level of overall CSP, environmental, and social performance decreases BL. Consequently, the robustness tests results support the results of the existing studies on times of downturn (in particular, Boubaker et al, 2020;Cooper & Uzun, 2019) and strenghten our findings for times of upswing.…”

Section: Introductionsupporting

confidence: 90%

“…They compared 78 US firms that filed for Chapter 11 1 with matched counterparts (i.e., similar firms that did not file for Chapter 11) during the period 2007 to 2014. Besides, Boubaker et al (2020) used a more robust sample of 1,201 USlisted firms and the Altman Z score (Z score) as a proxy for financial distress risk (FDR), during 1991-2012. In this vein, Lin and Dong (2018) applied a logistic regression model incorporating observations between 2000 and 2014.…”

Section: Introductionmentioning

confidence: 99%

“…First, we apply a high-quality measure for future BL (Altman, 1968;Altman et al, 2017). Second, since the Z score is available for many publicly listed firms, we employ a robust sample as conducted in Boubaker et al (2020). In contrast to that study, we use Refinitiv ESG scores to investigate the relationship between bankruptcy and CSP.…”

Section: Introductionmentioning

confidence: 99%

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Corporate Social Performance and the Likelihood of Bankruptcy: Evidence from a Period of Economic Upswing

Habermann

Fischer

2021

J Bus Ethics

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The paper aims to investigate the effects of corporate social performance (CSP) on bankruptcy likelihood in times of economic upswing. This is important because prior related literature focused on data containing times of economic crises. We measure bankruptcy likelihood with the Altman Z score and CSP with Refinitiv ESG scores. By applying static panel data regressions and instrumental variable regressions on a sample of 6696 US-firm-year observations from 2010 to 2019 our main findings are: (i) In contrast to existing research, the level of firms’ CSP seems to have no (positive) effect on the likelihood of bankruptcy during times of economic upswing. (ii) Increasing a firm’s CSP in times of economic upswing leads to a rise in bankruptcy likelihood. We conclude that the positive effects of CSP on stakeholder relationships fail to materialize in flourishing business environments. The costs of increasing CSP, thus, exceed their immediate positive effects and raise bankruptcy likelihood. However, as they reduce financial default risk in subsequent crises, CSP investments can be seen as a balancing measure. Our findings bear implications for scholars, practitioners, and policymakers.

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Section: Introductionsupporting

confidence: 90%

Section: Introductionmentioning

confidence: 99%

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Corporate Social Performance and the Likelihood of Bankruptcy: Evidence from a Period of Economic Upswing

Habermann

Fischer

2021

J Bus Ethics

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“…Kim et al (2014) find that firms with a higher standard of transparency engage in less harmful news hoarding, hence lowering their exposition to crash risk. Similarly, Boubaker et al (2020) show that firms with higher ESG scores have a lower financial distress risk, and as a result, are less likely to face financial defaults. Such a finding supports the mitigating effect of ESG on crash risk.…”

Section: Literary Review On Esg Investingmentioning

confidence: 90%

“…"Below Average" and "Average" funds have fat tails, while kurtosis is slightly higher than the normal for the other categories. The higher risk for Low ranked funds could be justified by their higher exposition to the stakeholder risk (Becchetti et al, 2018), to the crash-risk (Kim et al, 2014, Boubaker et al, 2020, market risk (Albuquerque et al, 2018) or to a combination of these risk sources.…”

Section: Table I Dimension Of the Investment Sets Across Esg Categoriesmentioning

confidence: 99%

ESG investing: A chance to reduce systemic risk

Cerqueti

Ciciretti

Dalò

et al. 2021

Journal of Financial Stability

114

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Environmental, social and governance disclosure and default risk

2021

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We investigate whether environmental, social and governance (ESG) disclosure is related to default risk. Using a sample of US nonfinancial institutions from 2006 to 2017, we find that ESG disclosure is positively related to Merton's distance to default and is negatively related to the credit default swap spread, which suggests that firms with a higher ESG disclosure have lower default risk. Our analysis further indicates that the inverse effect of ESG disclosure on default risk is through increased profitability and reduced performance variability and cost of debt. We also document that the negative impact of ESG disclosure on default risk is existent only for mature and older firms. These results are important for all stakeholders of firms, including shareholders and bondholders to consider firm's ESG disclosure in conjunction with life cycle stage before making their investment decisions.

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Does corporate social responsibility reduce financial distress risk?

Cited by 279 publications

References 72 publications

Corporate Social Performance and the Likelihood of Bankruptcy: Evidence from a Period of Economic Upswing

Corporate Social Performance and the Likelihood of Bankruptcy: Evidence from a Period of Economic Upswing

ESG investing: A chance to reduce systemic risk

Environmental, social and governance disclosure and default risk

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