The Impact of Corporate Social Responsibility on Default Risk: Empirical evidence from US Firms

Rizwan, Muhammad; Obaid, Asifa; Ashraf, Dawood

doi:10.22547/ber/9.3.2

Cited by 8 publications

(2 citation statements)

References 46 publications

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“…Dewaelheyns and Hulle [25] argued the likelihood of a default decreases when the return on assets improves. Companies that are profitable often have a lower likelihood of defaulting on their debt commitments because profitable companies create larger cash flows, which may be utilized to pay down their debt obligations [27]. Hamid and Siddiqui [28] using data of Pakistani Non-financial firms found that firms with high level of profitability, Cash Flows, liquidity and growth rate are less risky as compared to firms with lower levels of profitability, liquidity and growth rate.…”

Section: Firm Specific Determinants Of Probability Of Defaultmentioning

confidence: 99%

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Firm Specific and Macroeconomic Determinants of Probability of Default: A Case of Pakistani Non-Financial Sector

Hamid¹,

Siddiqui²

2023

IJSDP

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This study extends the literature on the capital structure by examining the effect of firm specific and macroeconomic factors on probability of default using 2385 firm year observations of Non-financial firms listed on Pakistan Stock Exchange (PSX) for the period 1998 to 2021. This is the first study that used a large dataset to analyze the default risk of Pakistani listed non-financial companies. This study follows Bharat and Shumway (2008) methodology to calculate expected default probability, which is a simplified version of the Merton (1974) structural default model. Fixed effect model has been used for data analysis. The empirical results of firm specific variables show that growth, operating cash flow ratio, liquidity, and performance is negatively related with the probability of default while leverage and tangibility of assets are positively related with the probability of default. Size of the company has no relationship with the probability of default. Macroeconomic variables economic conditions measured by GDP growth rate and index return have negative while short term interest rate have positive impact on probability of default. This study may be beneficial to the managers of non-financial companies since it may help them become more aware of the consequences of default risk and may also help them build effective policies linked to managing default risk. The board of directors of non-financial companies can extract valuable information from this study which is required to conduct control measures related to default risk management. The study excluded financial firm because those have different capital structure as compared to non-financial firms. Further studies can also investigate the effect of firm-specific factors and macroeconomic factors in different sectors to check is there any difference in results on sector basis.

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Section: Firm Specific Determinants Of Probability Of Defaultmentioning

confidence: 99%

“…One of the variables that affects a firm's likelihood of default is its size [27]. According to the trade-off argument, large companies typically have higher debt ratios because they have less information asymmetry.…”

Section: Firm Specific Determinants Of Probability Of Defaultmentioning

confidence: 99%