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Corporate social responsibility and firm default risk in the Eurozone: a market-based approach

Mohamad Hassan Shahrour (Université Grenoble Alpes, Grenoble INP, CERAG, Grenoble, France)
Isabelle Girerd-Potin (Université Grenoble Alpes, Grenoble INP, CERAG, Grenoble, France)
Ollivier Taramasco (Université Grenoble Alpes, Grenoble INP, CERAG, Grenoble, France)

Managerial Finance

ISSN: 0307-4358

Article publication date: 5 February 2021

Issue publication date: 29 June 2021




The purpose of this study is to examine the relationship between corporate social responsibility (CSR) and the default risk level of firms operating in the Eurozone and how CSR can provide insurance-like protection during financial/economic downturns.


Based on prior empirical studies and by integrating the insights of different theories, this study proposes a framework linking CSR, firm default risk and corporate financial performance to explain firms' social behavior that can trigger default risk determinants (e.g. cost of capital, leverage, sales level) directly or indirectly. The authors use a panel regression approach.


The results support the mitigating effect of CSR on firm default risk. This effect is higher during a financial crisis, suggesting that CSR could provide insurance-like protection during economic downturns. These results hold even after using an alternative risk measure. Granger causality test results strongly suggest that reverse causality is not a concern. An instrumental variable approach is proposed to deal with potential endogeneity issues.


While other studies examine the CSR–firm default risk relationship in US samples, this study focuses on the Eurozone. The novelty of this work is based on its sample and how financial crises are addressed within this relationship. Insurance-like protection concerns both negative announcements and periods (e.g. financial crises, recessions). The study's results are useful for investors and risk managers who intend to manage default risk in their portfolios or firms.



The authors are grateful to the Vigeo Eiris social rating agency for their generosity in providing the ratings they produce. The authors would like to thank the editor, Professor Don T Johnson, and two anonymous referees for numerous valuable comments and suggestions.Conflict of interest: The authors declare that they have no conflict of interest.


Shahrour, M.H., Girerd-Potin, I. and Taramasco, O. (2021), "Corporate social responsibility and firm default risk in the Eurozone: a market-based approach", Managerial Finance, Vol. 47 No. 7, pp. 975-997.



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