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

See all articles by Ariadna Dumitrescu

Ariadna Dumitrescu

ESADE Business School

Menna El Hefnawy

Universidad Complutense de Madrid (UCM) - Colegio Universitario de Estudios Financieros (CUNEF)

Mohammed Zakriya

IÉSEG School of Management; CNRS; Lille Economie Management (LEM) UMR 9221; University of Lille

Date Written: November 25, 2019

Abstract

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

Dumitrescu, Ariadna and El Hefnawy, Menna and Zakriya, Mohammed, Golden Geese or Black Sheep: Are Stakeholders the Saviors or Saboteurs of Financial Distress? (November 25, 2019). Finance Research Letters, 37, 101371, 2020, Available at SSRN: https://ssrn.com/abstract=3492989 or http://dx.doi.org/10.2139/ssrn.3492989

Ariadna Dumitrescu (Contact Author)

ESADE Business School ( email )

Av. Pedralbes 60-62
Barcelona, 08034
Spain

Menna El Hefnawy

Universidad Complutense de Madrid (UCM) - Colegio Universitario de Estudios Financieros (CUNEF) ( email )

Calle de Leonardo Prieto Castro, 2
Madrid, Madrid 28004
Spain

Mohammed Zakriya

IÉSEG School of Management ( email )

3 rue de la Digue
Lille, 59000
France

CNRS ( email )

Lille
France

Lille Economie Management (LEM) UMR 9221 ( email )

Lille
France

University of Lille ( email )

Cité Scientifique
Villeneuve-d'Ascq, 59650
France

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