Golden Geese or Black Sheep: Are Stakeholders the Saviors or Saboteurs of Financial Distress?
30 Pages Posted: 12 Dec 2019 Last revised: 24 Feb 2022
Date Written: November 25, 2019
Is stakeholder management crucial for financial distress? Unlike the prior literature that shows the mitigating influence of corporate social responsibility (CSR) on distress risk, we find that social stakeholder initiatives can increase the likelihood of future financial distress. Using a quasi-experiment, we find that this relationship is likely to be causal. We further show that managerial focus and financial constraints are two possible channels through which the social dimension could impact distress. Investors should hence view firms' CSR investments with caution.
Keywords: Financial Distress, Firm Survival, CSR, ESG, Social Performance, Corporate Governance
JEL Classification: G14, G30, M14, Q50
Suggested Citation: Suggested Citation