Corporate social responsibility and future bankruptcy
ISSN: 2049-372X
Article publication date: 22 June 2022
Issue publication date: 13 October 2023
Abstract
Purpose
This study aims to investigate the cross-sectional differences on the association between corporate social responsibility (CSR) and future bankruptcy along the dimensions of political connection and corporate governance strength. This study intends to provide evidence on the tangible benefits for firms to invest in social capital of CSR activities and offer insights on what firms may benefit more from CSR expenditure.
Design/methodology/approach
Running a logistic regression on the determinants of bankruptcy model after controlling for financial stress factors based on prior literature, this study examines the moderating effect of political connection and corporate governance on the association between corporate social responsibility and future bankruptcy.
Findings
Current study documents that the negative association between corporate social responsibility and future bankruptcy is only significant for politically connected firms, but insignificant for non-politically connected firms. Specifically, the authors find that one standard deviation increase of CSR expenditure significantly reduces the propensity of future bankruptcy by 53.20% for politically-connected firms. Conversely, the negative relation between CSR only exits for firms with weak corporate governance but do not exit for firms with strong corporate governance.
Research limitations/implications
Current study provides evidence on the tangible benefits for firms to invest in social capital of CSR activities and offers additional insights on what firms may benefit more from CSR expenditure.
Originality/value
Current study extends the research to examine the cross-sectional variations in the negative association between CSR performance and the propensity of bankruptcy. The positive moderating effect of political connection on CSR and bankruptcy suggests that political connection and CSR are complements in reducing the propensity of future bankruptcy. A more pronounced negative association between CSR and bankruptcy for firms with weaker governance suggests that firms with weak corporate governance benefits more in engaging CSR activities than firms with strong corporate governance.
Keywords
Acknowledgements
The authors gratefully acknowledge the helpful comments and suggestions of the workshop participants of 2019 American Accounting Association (AAA) Annual Meeting, the the editor Dr. Warren Maroun and two anonymous referees. Dr. Brooks would like to acknowledge the summer research funding received from Texas A & M International University for the period of 2017 to 2020.
Since the time of writing this article, Dr. Jean B. McGuire regrettably deceased.
Citation
Brooks, L.(L).Z. and McGuire, J.B. (2023), "Corporate social responsibility and future bankruptcy", Meditari Accountancy Research, Vol. 31 No. 5, pp. 1266-1291. https://doi.org/10.1108/MEDAR-12-2020-1141
Publisher
:Emerald Publishing Limited
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