Corporate Social Responsibility Performance, Financial Distress and Firm Life Cycle: Evidence from Australia

This study examines the association between corporate social responsibility (CSR) performance and financial distress and additionally the moderating impact of firm life cycle stages on that association. Based on a sample of 651 publicly listed Australian firm‐years’ data covering the 2007–2013 period, our regression results show that positive CSR activity significantly reduces financial distress of the firm. In addition, the negative association between positive CSR performance and financial distress is more pronounced for firms in mature life cycle stages. Our results are robust to alternative proxy measures of financial distress, CSR performance and life cycle stages.

[1]  H. Jo,et al.  Does Corporate Social Responsibility Affect Information Asymmetry? , 2016, Journal of Business Ethics.

[2]  E. Ofek,et al.  Investor Valuation of the Abandonment Option , 1995 .

[3]  Paul C. Godfrey.  The Relationship Between Corporate Philanthropy And Shareholder Wealth: A Risk Management Perspective , 2005 .

[4]  Murillo Campello,et al.  The Real Effects of Financial Constraints: Evidence from a Financial Crisis , 2009 .

[5]  Boyan Jovanovic.  Selection and the evolution of industry , 1981 .

[6]  Edward I. Altman,et al.  FINANCIAL RATIOS, DISCRIMINANT ANALYSIS AND THE PREDICTION OF CORPORATE BANKRUPTCY , 1968 .

[7]  Barbara Gray,et al.  Politics and Strategic Change Across Organizational Life Cycles , 1985 .

[8]  M. Spence.  The Learning Curve and Competition , 1981 .

[9]  Khaled Elsayed,et al.  The impact of financial performance on environmental policy: does firm life cycle matter? , 2009 .

[10]  J. D. Margolis,et al.  People and profits? : the search for a link between a company's social and financial performance , 2001 .

[11]  P. H. Friesen,et al.  A Longitudinal Study of the Corporate Life Cycle , 1984 .

[12]  I. Ioannou,et al.  Corporate Social Responsibility and Access to Finance , 2011 .

[13]  Constance E. Helfat,et al.  The dynamic resource-based view: capability lifecycles , 2003 .

[14]  Victoria Dickinson,et al.  Cash Flow Patterns as a Proxy for Firm Life Cycle , 2011 .

[15]  Edward I. Altman,et al.  Corporate Financial Distress and Bankruptcy , 1993 .

[16]  Robert W. Faff,et al.  Corporate Sustainability Performance and Idiosyncratic Risk: A Global Perspective , 2009 .

[17]  Ravichandran Subramaniam,et al.  Liquidity Implications of Corporate Social Responsibility Disclosures: Malaysian Evidence , 2016 .

[18]  Jeffrey M. Woodbridge.  Econometric Analysis of Cross Section and Panel Data , 2002 .

[19]  Allen Goss.  Corporate Social Responsibility and Financial Distress , 2009 .

[20]  Abagail McWilliams,et al.  Corporate Social Responsibility: a Theory of the Firm Perspective , 2001 .

[21]  Ahsan Habib,et al.  Corporate life cycle, organizational financial resources and corporate social responsibility , 2017 .

[22]  Qiang Wu,et al.  Is Corporate Social Responsibility (CSR) Associated with Tax Avoidance? Evidence from Irresponsible CSR Activities , 2013 .

[23]  Heitor Almeida,et al.  Financial Constraints, Asset Tangibility, and Corporate Investment , 2004 .

[24]  Sian A. Owen,et al.  Corporate life cycle and M&A activity , 2010 .

[25]  Lemma W. Senbet,et al.  Absolute Priority Rule Violations and Risk Incentives for Financially Distressed Firms , 1993 .

[26]  David S. Jenkins,et al.  The Impact of the Corporate Life‐Cycle on the Value‐Relevance of Disaggregated Earnings Components , 2004 .

[27]  Campbell R. Harvey,et al.  Access to Liquidity and Corporate Investment in Europe During the Financial Crisis , 2011 .

[28]  Samuel B. Graves,et al.  The corporate social performance-financial performance link , 1997 .

[29]  A. Spence.  Entry, Capacity, Investment and Oligopolistic Pricing , 1977 .

[30]  Campbell R. Harvey,et al.  Liquidity Management and Corporate Investment During a Financial Crisis , 2010 .

[31]  J. Morgan,et al.  CSR as Reputation Insurance: Primum Non Nocere , 2011 .

[32]  C. Deegan.  Introduction: The legitimising effect of social and environmental disclosures – a theoretical foundation , 2002 .

[33]  Omrane Guedhami,et al.  Does Corporate Social Responsibility Affect the Cost of Capital? , 2010 .

[34]  Ahsan Habib,et al.  Risk Committee, Firm Life Cycle, and Market Risk Disclosures , 2016 .

[35]  Ahsan Habib,et al.  Firm Life Cycle, Corporate Risk‐Taking and Investor Sentiment , 2015 .

[36]  Jungwon Suh,et al.  Corporate Social Responsibility and Credit Ratings , 2013, Journal of Business Ethics.

[37]  T. Shevlin,et al.  Financial Constraints and the Incentive for Tax Planning , 2013 .

[38]  A. Michael Spence,et al.  Investment Strategy and Growth in a New Market , 1979 .

[39]  S. Titman,et al.  Financial Policy and Reputation for Product Quality , 1991 .

[40]  Donald V. Moser,et al.  A Broader Perspective on Corporate Social Responsibility Research in Accounting , 2012 .

[41]  Ahsan Habib,et al.  Corporate Life Cycle and Cost of Equity Capital , 2015 .

[42]  I. Jawahar,et al.  Toward a Descriptive Stakeholder Theory: an Organizational Life Cycle Approach , 2001 .

[43]  Ray J. Pfeiffer,et al.  Corporate social responsibility performance and information asymmetry , 2013 .

[44]  Najah Attig,et al.  Managerial Practices and Corporate Social Responsibility , 2015 .

[45]  René M. Stulz,et al.  Dividend policy and the earned/contributed capital mix: a test of the life-cycle theory , 2006 .

[46]  R. Avi-Yonah.  Corporate Social Responsibility and Strategic Tax Behavior , 2006 .

[47]  Paul C. Godfrey,et al.  The relationship between corporate social responsibility and shareholder value: an empirical test of the risk management hypothesis , 2009 .

[48]  S. Klepper,et al.  Time Paths in the Diffusion of Product Innovations , 1982 .