Skip to main navigation menu Skip to main content Skip to site footer

Corporate social responsibility and forward default risk under firm and industry heterogeneity



Objective: This study aims to evaluate the impact of corporate social responsibility on forward default risk (FDR) under the setting of firm and industry heterogeneity.

Research Design & Methods: This study evaluated the impact of corporate social responsibility (CSR) on FDR using the data of 497 companies from 2007-2021 in the S&P 500 index, taking into account firm and industry heterogeneity aspects. This study utilized instrumental variable regression using the generalized method of moments (IV-GMM) estimation technique which is robust for controlling the pertinent issue of endogeneity.

Findings: This study found a negative relationship between CSR and FDR in the full sample. From the firm size aspect, this study found that CSR is more effective in mitigating FDR in large-cap firms than in mid-cap firms. Firm age heterogeneity exhibited a distinct behaviour, as young and middle-aged firms had a stronger impact on FDR management in comparison to old firms. Industry heterogeneity showed that industries with higher customer interaction have a higher impact on corporate social responsibility to control FDR. Industries with lower customer interaction have a lower impact on corporate social responsibility and FDR.

Implications & Recommendations: We proposed some policy recommendations based on the findings in the context of firm and industry heterogeneity. Especially the management of mid-cap and young corporations should improve the CSR policy to enhance CSR performance which would lead to stabilized protection against FDR. Similarly, consumer-intensive industries should also focus on enhancing CSR initiatives to decrease FDR. Non-consumer-intensive industries should focus on enhancing CSR policy and at the same time pay particular attention to communicating CSR results to end consumers to reduce FDR.

Contribution & Value Added: This study is the first to explore CSR’s impact on financial parameters under heterogeneity.



corporate social responsibility, forward default risk, heterogeneity effect, firm, industry

(PDF) Save

Author Biography

Muhammad Mushafiq

MSc in Finance (2021, Bahria University Islamabad, Pakistan); Doctoral Scholar at Gdańsk University of Technology (Poland). His research interests include environmental economics and financial management.

Błażej Prusak

Habilitation in Economics (2014, Gdańsk University of Technology, Poland); Associate Professor and Head of Department (Finance) at Gdańsk University of Technology (Poland). His research interests include corporate and personal bankruptcy, corporate bankruptcy prediction, business valuation, investment projects and financial analysis.

Magdalena Markiewicz

PhD in Economics (2010, University of Gdańsk, Poland); Assistant Professor and Vice-Dean (Development and Cooperation with the Social and Economic Environment) at University of Gdańsk (Poland). Her research interests include financial markets and corporate finance.


  1. Aguinis, H., & Glavas, A. (2012). What We Know and Don’t Know About Corporate Social Responsibility. Journal of Management, 38(4), 932-968.
  2. Al-Hadi, A., Chatterjee, B., Yaftian, A., Taylor, G., & Monzur Hasan, M. (2019). Corporate social responsibility performance, financial distress and firm life cycle: evidence from Australia. Accounting and Finance, 59(2), 961-989.
  3. Albuquerque, R., Koskinen, Y., & Zhang, C. (2019). Corporate social responsibility and firm risk: Theory and empirical evidence. Management Science, 65(10), 4451-4469.
  4. Altman, E. I., & Sabato, G. (2007). Modelling Credit Risk for SMEs: Evidence from the U.S. Market. Abacus, 43(3), 332-357.
  5. Amato, L.H., & Amato, C.H. (2006). The Effects of Firm Size and Industry on Corporate Giving. Journal of Business Ethics 2006, 72(3), 229-241.
  6. Amato, L.H., & Amato, C.H. (2012). Retail Philanthropy: Firm Size, Industry, and Business Cycle. Journal of Business Ethics, 107(4), 435-448.
  7. Badayi, S.A., Matemilola, B.T., Bany-Ariffin, A.N., & Wei Theng, L. (2021). Does corporate social responsibility influence firm probability of default? International Journal of Finance and Economics, 26(3), 3377-3395.
  8. Bannier, C.E., Bofinger, Y., & Rock, B. (2022). Corporate social responsibility and credit risk. Finance Research Letters, 44(4), 679-694.
  9. Barnea, A., & Rubin, A. (2010). Corporate Social Responsibility as a Conflict Between Shareholders. Journal of Business Ethics, 97(1), 71-86.
  10. Benabou, R., & Tirole, J. (2010). Individual and Corporate Social Responsibility. Economica, 77(305), 1-19.
  11. Benlemlih, M., Shaukat, A., Qiu, Y., & Trojanowski, G. (2018). Environmental and Social Disclosures and Firm Risk. Journal of Business Ethics, 152(3), 613-626.
  12. Berg, F., Kölbel, J.F., & Rigobon, R. (2022). Aggregate Confusion: The Divergence of ESG Ratings. Review of Finance, 26(6), 1315-1344.
  13. Beschorner, T., Hajduk, T., & Simeonov, S. (2013). Corporate Responsibility in Europe: Government Involvement in Sector-specific Initiatives. Verlag Bertelsmann Stiftung.
  14. Boubaker, S., Cellier, A., Manita, R., & Saeed, A. (2020). Does corporate social responsibility reduce financial distress risk? Economic Modelling, 91, 835-851.
  15. Brammer, S., & Millington, A. (2006). Corporate Reputation and Philanthropy: An Empirical Analysis. Journal of Business Ethics, 61(1), 29-44.
  16. Brown, T.J., & Dacin, P.A. (1997). The Company and the Product: Corporate Associations and Consumer Product Responses. Journal of Marketing, 61(1), 68-84.
  17. Çera, G., Belas, J., Marousek, J., & Çera, E. (2020). Do size and age of small and medium-sized enterprises matter in corporate social responsibility?. Economics and Sociology, 13(2), 86-99.
  18. Chang, T.C., Yan, Y.C., & Chou, L.C. (2013). Is default probability associated with corporate social responsibility? Asia-Pacific Journal of Accounting and Economics, 20(4), 457-472.
  19. Cheng, B., Ioannou, I., & Serafeim, G. (2014). Corporate social responsibility and access to finance. Strategic Management Journal, 35(1), 1-23.
  20. Chollet, P., & Sandwidi, B.W. (2018). CSR engagement and financial risk: A virtuous circle? International evidence. Global Finance Journal, 38, 65-81.
  21. Cohen, G. (2022). ESG risks and corporate survival. Environment Systems and Decisions.
  22. CRI. (2009). Credit Research Initiative of the National University of Singapore. Retrieved from on January 2, 2023.
  23. Dabic, M., Colovic, A., Lamotte, O., Painter-Morland, M., & Brozovic, S. (2016). Industry-specific CSR: analysis of 20 years of research. European Business Review, 28(3), 250-273.
  24. Damodaran, A. (1996). Corporate Finance. (Wiley).
  25. Davis, K., & Blomstrom, R.L. (1975). Business and society: Environment and responsibility. McGraw-Hill.
  26. Do, T.K. (2022). Corporate social responsibility and default risk: International evidence. Finance Research Letters, 44, 102063.
  27. Donaldson, L. (2001). The Contingency Theory of Organizations. Sage.
  28. Duan, J.C., Sun, J., & Wang, T. (2012). Multiperiod corporate default prediction—A forward intensity approach. Journal of Econometrics, 170(1), 191-209.
  29. Dumitrescu, A., El Hefnawy, M., & Zakriya, M. (2020). Golden geese or black sheep: Are stakeholders the saviors or saboteurs of financial distress?. Finance Research Letters, 37.
  30. European Commission. (2009). Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions A renewed EU strategy 2011-14 for Corporate Social Responsibility. Retrieved from on January 3, 2023.
  31. Fairbrass, J. (2011). Exploring Corporate Social Responsibility Policy in the European Union: A Discursive Institutionalist Analysis*. JCMS: Journal of Common Market Studies, 49(5), 949-970.
  32. Fairbrass, J., & Zueva-Owens, A. (2012). Conceptualising Corporate Social Responsibility: “Relational Governance” Assessed, Augmented, and Adapted. Journal of Business Ethics, 105(3), 321-335.
  33. Fatemi, A., Glaum, M., & Kaiser, S. (2018). ESG performance and firm value: The moderating role of disclosure. Global Finance Journal, 38, 45-64.
  34. Galbreath, J. (2010). Drivers of Corporate Social Responsibility: the Role of Formal Strategic Planning and Firm Culture. British Journal of Management, 21(2), 511-525.
  35. Gangi, F., Meles, A., Monferrà, S., & Mustilli, M. (2020). Does corporate social responsibility help the survivorship of SMEs and large firms? Global Finance Journal, 43, 100402.
  36. Godfrey, P.C. (2005). The relationship between corporate philanthropy and shareholder wealth: A risk management perspective. Academy of Management Review, 30(4), 777-798.
  37. Greening, D.W., & Turban, D.B. (2000). Corporate Social Performance As a Competitive Advantage in Attracting a Quality Workforce. Business & Society, 39(3), 254-280.
  38. Habermann, F., & Fischer, F.B. (2021). Corporate Social Performance and the Likelihood of Bankruptcy: Evidence from a Period of Economic Upswing. Journal of Business Ethics, 1, 1-17.
  39. Hendry, J.R. (2006). Taking aim at business: What factors lead environmental non-governmental organizations to target particular firms?. Business and Society, 45(1), 47-86.
  40. Hsu, F.J., & Chen, S.H. (2021). US quantitative easing and firm’s default risk: The role of Corporate Social Responsibility (CSR). Quarterly Review of Economics and Finance, 80, 650-664.
  41. Hsu, F.J., & Chen, Y.C. (2015). Is a firm’s financial risk associated with corporate social responsibility?. Management Decision, 53(9), 2175-2199.
  42. Hussaini, M., Hussain, N., Nguyen, D.K., & Rigoni, U. (2021). Is corporate social responsibility an agency problem? An empirical note from takeovers. Finance Research Letters, 43, 102007.
  43. Jo, H., & Na, H. (2012). Does CSR Reduce Firm Risk? Evidence from Controversial Industry Sectors. Journal of Business Ethics, 110(4), 441-456.
  44. Johnson, R.A., & Greening, D.W. (1999). The Effects of Corporate Governance and Institutional Ownership Types on Corporate Social Performance. Academy of Management Journal, 42(5), 564-576.
  45. Kamalirezaei, H., Anvary Rostamy, A.A., Saeedi, A., & Khodaei Valeh Zaghard, M. (2020). Corporate social responsibility and bankruptcy probability: Exploring the role of market competition, intellectual capital, and equity cost. Journal of Corporate Accounting and Finance, 31(1), 53-63.
  46. Koh, K., Li, H., & Tong, Y.H. (2023). Corporate social responsibility (CSR) performance and stakeholder engagement: Evidence from the quantity and quality of CSR disclosures. Corporate Social Responsibility and Environmental Management, 30(2), 504-517.
  47. Kölbel, J.F., & Busch, T. (2021). Signaling legitimacy across institutional contexts—The intermediary role of corporate social responsibility rating agencies. Global Strategy Journal, 11(2), 304-328.
  48. Lerner, L.D., & Fryxell, G.E. (1988). An Empirical Study of the Predictors of Corporate Social Performance: A Multi-Dimensional Analysis. Source: Journal of Business Ethics, 7(12), 951-959.
  49. Lin, K.C., & Dong, X. (2018). Corporate social responsibility engagement of financially distressed firms and their bankruptcy likelihood. Advances in Accounting, 43, 32-45.
  50. Lins, K.V, Servaes, H., & Tamayo, A. (2017). Social Capital, Trust, and Firm Performance: The Value of Corporate Social Responsibility during the Financial Crisis. Journal of Finance, 72(4), 1785-1824.
  51. Lu, G., Ding, X. (David), Peng, D.X., & Hao-Chun Chuang, H. (2018). Addressing endogeneity in operations management research: Recent developments, common problems, and directions for future research. Journal of Operations Management, 64.
  52. Luo, X., & Bhattacharya, C.B. (2009). The debate over doing good: Corporate social performance, strategic marketing levers, and firm-Idiosyncratic risk. Journal of Marketing, 73(6), 198-213.
  53. McWilliams, A., Siegel, D.S., & Wright, P.M. (2006). Corporate Social Responsibility: Strategic Implications*. Journal of Management Studies, 43(1), 1-18.
  54. Meles, A., Salerno, D., Sampagnaro, G., Verdoliva, V., & Zhang, J. (2023). The influence of green innovation on default risk: Evidence from Europe. International Review of Economics and Finance, 84.
  55. Messersmith, J.G., & Wales, W.J. (2013). Entrepreneurial orientation and performance in young firms: The role of human resource management. International Small Business Journal, 31(2), 115-36.
  56. Mochales, G., & Blanch, J. (2022). Unlocking the potential of CSR: An explanatory model to determine the strategic character of CSR activities. Journal of Business Research, 140, 310-323.
  57. Mushafiq, M., & Prusak, B. (2022). Does being socially good save firms from bankruptcy? A systematic literature review and bibliometric analysis. Ekonomia i Środowisko - Economics and Environment, 83(4), 35-59.
  58. Neitzert, F., & Petras, M. (2022). Corporate social responsibility and bank risk. Journal of Business Economics, 92(3), 397-428.
  59. Nguyen, L.T., & Nguyen, K.V. (2021). The impact of corporate social responsibility on the risk of commercial banks with different levels of financial constraint. Asia-Pacific Journal of Business Administration, 13(1), 98-116.
  60. Nguyen, Q., Diaz-Rainey, I., & Kuruppuarachchi, D. (2023). In search of climate distress risk. International Review of Financial Analysis, 85.
  61. O’Connor, A., & Shumate, M. (2010). An economic industry and institutional level of analysis of corporate social responsibility communication. Management Communication Quarterly, 24(4), 529-551.
  62. Petrenko, O.V., Aime, F., Ridge, J., & Hill, A. (2016). Corporate social responsibility or CEO narcissism? CSR motivations and organizational performance. Strategic Management Journal, 37(2), 262-279.
  63. Pfajfar, G., Shoham, A., Małecka, A., & Zalaznik, M. (2022). Value of corporate social responsibility for multiple stakeholders and social impact – Relationship marketing perspective. Journal of Business Research, 143, 46-61.
  64. Ratajczak, P., & Szutowski, D. (2016). Exploring the relationship between CSR and innovation. Sustainability Accounting, Management and Policy Journal, 7(2), 295-318.
  65. Risi, D., Vigneau, L., Bohn, S., & Wickert, C. (2023). Institutional theory-based research on corporate social responsibility: Bringing values back in. International Journal of Management Reviews, 25(1), 3-23.
  66. Roberts, R.W. (1992). Determinants of corporate social responsibility disclosure: An application of stakeholder theory. Accounting, Organizations and Society, 17(6), 595-612.
  67. Ross, S. (2021). Small Cap Stocks vs. Large Cap: Key Differences. Retrieved from on March 2, 2023.
  68. Saidane, D., & Abdallah, S. Ben. (2021). African firm default risk and CSR. Finance Research Letters, 43, 101964.
  69. Sen, S., & Bhattacharya, C.B. (2001). Does doing good always lead to doing better? Consumer reactions to corporate social responsibility. Journal of Marketing Research, 38(2), 225-243.
  70. Shahab, Y., Ntim, C.G., Chengang, Y., Ullah, F., & Fosu, S. (2018). Environmental policy, environmental performance, and financial distress in China: Do top management team characteristics matter?. Business Strategy and the Environment, 27(8), 1635-1652.
  71. Shahab, Y., Ntim, C.G., & Ullah, F. (2019). The brighter side of being socially responsible: CSR ratings and financial distress among Chinese state and non-state owned firms. Applied Economics Letters, 26(3), 180-186.
  72. Shih, Y.C., Wang, Y., Zhong, R., & Ma, Y.M. (2021). Corporate environmental responsibility and default risk: Evidence from China. Pacific Basin Finance Journal, 68, 101596.
  73. Shrivastava, M., & Tamvada, J.P. (2019). Which green matters for whom? Greening and firm performance across age and size distribution of firms. Small Business Economics, 52(4), 951-968.
  74. Steffens, P., Davidsson, P., & Fitzsimmons, J. (2013). Performance configurations over time: Implications for growth- and profit-oriented strategies. Entrepreneurship Theory and Practice, 33(1), 125-148.
  75. Sun, W., & Cui, K. (2014). Linking corporate social responsibility to firm default risk. European Management Journal, 32(2), 275-287.
  76. Tirole, J. (2010). The Theory of Corporate Finance. Princeton University Press.
  77. Udayasankar, K. (2008). Corporate Social Responsibility and Firm Size. Journal of Business Ethics, 83(2), 167-175.
  78. Useem, M. (1988). Market and Institutional Factors in Corporate Contributions. California Management Review, 30(2), 77-88.
  79. Van Marrewijk, M. (2003). Concepts and Definitions of CSR and Corporate Sustainability: Between Agency and Communion. Journal of Business Ethics, 44(2-3), 95-105.
  80. Varadarajan, P.R., & Menon, A. (1988). Cause-Related Marketing: A Coalignment of Marketing Strategy and Corporate Philanthropy. Journal of Marketing, 52(3), 58-74.
  81. Vilanova, M., Lozano, J.M., & Arenas, D. (2009). Exploring the nature of the relationship between CSR and competitiveness. Journal of Business Ethics, 87(SUPPL. 1), 57-69.
  82. Waluyo, W. (2017). Firm size, firm age, and firm growth on corporate social responsibility in Indonesia: The case of real estate companies. European Research Studies Journal, 20(4), 360-369.
  83. Watson, A., Shrives, P., & Marston, C. (2002). Voluntary disclosure of accounting ratios in the UK. In British Accounting Review (34(4), pp. 289-313). Academic Press.
  84. Wayland, R.E., & Cole, P.M. (1998). Customer connections: new strategies for growth. Choice Reviews Online, 35(5), 35-2815-35-2815.
  85. Williams, R.J., & Barrett, J.D. (2000). Corporate philanthropy, criminal activity, and firm reputation: Is there a link?. Journal of Business Ethics, 26(4), 341-350.
  86. Withisuphakorn, P., & Jiraporn, P. (2016). The effect of firm maturity on corporate social responsibility (CSR): do older firms invest more in CSR?. Applied Economics Letters, 23(4), 298-301.
  87. Wu, C.M., & Hu, J.L. (2019). Can CSR reduce stock price crash risk? Evidence from China’s energy industry. Energy Policy, 128, 505-518.
  88. Yang, J., & Basile, K. (2022). Communicating Corporate Social Responsibility: External Stakeholder Involvement, Productivity and Firm Performance. Journal of Business Ethics, 178(2), 501-517.


Download data is not yet available.