CSR Actions and Financial Distress: Do Firms Change Their CSR Behavior When Signals of Financial Distress Are Identified?


Many studies have focused on the relation between financial and economic performance of firms and their actions on corporate social responsibility (CSR). However, few of them analyze CSR actions of firms facing decline. The purpose of this paper is to analyze if a recognized situation of financial distress has an impact on CSR strategies and modifies the attitude of a set of firms towards responsible behavior. We use CSR information of healthy and distressed US firms, during the years 2001-2007, to evidence feasible changes in CSR attitudes induced by distress position. The results show that healthy firms present changes in all the year windows analyzed while distressed firms tend to increase their concern valuation or reduce their strength valuation one year after identifying the symptoms of economic and financial weaknesses. However, these differences do not occur in all the dimensions of CSR, when considered separately.

Share and Cite:

Mecaj, A. and Bravo, M. (2014) CSR Actions and Financial Distress: Do Firms Change Their CSR Behavior When Signals of Financial Distress Are Identified?. Modern Economy, 5, 259-271. doi: 10.4236/me.2014.54027.

Conflicts of Interest

The authors declare no conflicts of interest.


[1] Prahalad, C.K. and Hamel, G. (1994) Strategy as a Field of Study: Why Search for a New Paradigm? Strategic Management Journal, 15, 5-16.
[2] McWilliams, A. and Siegel, D. (2001) Corporate Social Responsibility: A Theory of the Firm Perspective. Academy of Management Review, 26, 117-127.
[3] Schnietz, K.E. and Epstein, M. (2005) Exploring the Financial Value of a Reputation for Corporate Social Responsibility during a Crisis. Corporate Reputation Review, 7, 327-345.
[4] Graves, S.B. and Waddock, S.A. (2002) Beyond Built to Last: Stakeholder Relations in the Built to Last Companies. Business and Society Review, 105, 393-418.
[5] Konar, S. and Cohen, M. (2001) Does the Market Value Environmental Performance? Review of Economics and Statistics, 83, 281-309. http://dx.doi.org/10.1162/00346530151143815
[6] M. Orlitzky, Schmidt, F.L. and Rynes, S.R. (2003) Corporate Social and Financial Performance: A Meta-Analysis. Organization Studies, 24, 403-441. http://dx.doi.org/10.1177/0170840603024003910
[7] Schadewitz, H. and Niskala, M. (2010) Communication via Responsibility Reporting and Its Effect on Firm Value in Finland. Corporate Social Responsibility and Environmental Management, 17, 96-106.
[8] Semenova, N., Hassel, L.G. and Nilsson, H. (2010) The Value Relevance of Environmental and Social Performance: Evidence from Swedish SIX 300 Companies. Liiketaloudellinen Aikakauskirja, 3, 265-292.
[9] Lo, S.F. and Sheu, H.J. (2007) Is Corporate Sustainability a Value-Increasing Strategy for Business? Corporate Governance: An International Review, 15, 345-358. http://dx.doi.org/10.1111/j.1467-8683.2007.00565.x
[10] Mackey, A., Mackey, T.B. and Barney, J.B. (2007) Corporate Social Responsibility and Firm Performance: Investor Preferences and Corporate Strategies. Academy of Management Review, 32, 817-835. http://dx.doi.org/10.5465/AMR.2007.25275676
[11] Heal, G. (2005) Corporate Social Responsibility: An Economic and Financial Framework. The Geneva Papers, 30, 387-409.
[12] Goss, A. (2007) Essays a Corporate Social Responsibility and Financial Performance. Dissertation, York University, Toronto.
[13] Goss, A. (2009) Corporate Social Responsibility and Financial Distress. ASAC, Niagara Falls.
[14] Hillman, A.J. and Keim, G.D. (2001) Shareholder Value, Stakeholder Management, and Social Issues: What’s the Bottom Line? Strategic Management Journal, 22, 125-139.
[15] Luo, X.M. and Bhattacharya, C.B. (2006) Corporate Social Responsibility, Customer Satisfaction and Market Value. Journal of Marketing, 70, 1-18. http://dx.doi.org/10.1509/jmkg.70.4.1
[16] Lee, D.D., Faff, R.W. and Langfield-Smith, K. (2009) Revisiting the Vexing Question: Does Superior Corporate Social Performance Lead to Improved Financial Performance? Australian Journal of Management, 34, 21-49.
[17] Ho, L.-C.J. and Taylor, M.E. (2007) An Empirical Analysis of Triple Bottom-Line Reporting and its Determinants: Evidence from the United States and Japan. Journal of International Financial Management and Accounting, 18, 123150. http://dx.doi.org/10.1111/j.1467-646X.2007.01010.x
[18] Fombrun, C.J. and Shanley, M. (1990) What Is in a Name? Reputation Building and Corporate Strategy. Academy of Management Journal, 33, 233-259. http://dx.doi.org/10.2307/256324
[19] Feldman, S.J., Soyka, P.A. and Ameer, P.G. (1997) Does Improving a Firm’s Environmental Management System and Environmental Performance Result in a Higher Stock Price? Journal of Investing, 6, 87-97.
[20] Miles, M.P. and Covin, J.G. (2000) Environmental Marketing: A Source of Reputational, Competitive and Financial Advantage. Journal of Business Ethics, 23, 299-311.
[21] Devinney, T.M. (2009) Is the Socially Responsible Corporation a Myth? The Good, the Bad, and the Ugly of Corporate Social Responsibility. Academy of Management Perspectives, 23, 44-56.
[22] Ghoul, S., Guedhami, O., Kwok, C. and Mishra, D. (2011) Does Corporate Social Responsibility Affect the Cost of Capital? Journal of Banking and Finance, 35, 2388-2406.
[23] Whetten, D.A. and Mackey, A. (2004) An Identity-Congruence Explanation of Consistently High Corporate Social Performance Ratings. Working Paper, Marriott School of Management, Brigham Young University, Provo.
[24] Cheung, Y.L., Tan, W., Ahn, H.J. and Zhang, Z. (2010) Does Corporate Social Responsibility Matter in Asian Emerging Markets? Journal of Business Ethics, 92, 401-413. http://dx.doi.org/10.1007/s10551-009-0164-3
[25] Levine, M.A. (2008) The Benefits of Corporate Social Responsibility. New York Law Journal, August 13.
[26] Wang, Y.G. (2011) Corporate Social Responsibility and Stock Performance—Evidence from Taiwan. Modern Economy, 2, 788-799. http://dx.doi.org/10.4236/me.2011.25087
[27] Reinhardt, F. (1999) Market Failure and the Environmental Policies of Firms. Economic Rationales for “Beyond Compliance” Behavior. Journal of Industrial Ecology, 3, 9-21. http://dx.doi.org/10.1162/108819899569368
[28] Waddock, S.A. and Graves, S.A. (1997) The Corporate Social Performance-Financial Performance Link. Strategic Management Journal, 18, 303-319.
[29] Becchetti, L., Ciciretti, R., Hasan, I. and Kobeissi, N. (2012) Corporate Social Responsibility and Shareholder’s Value. Journal of Business Research, 65, 1628-1635.
[30] Ioannou, I. and Serafeim, G. (2010) The Impact of Corporate Social Responsibility on Investment Recommendations. Harvard Business School Accounting and Management Unit Working Paper No. 1507874, Boston, 11-17.
[31] Shea, L.J. (2010) Using Consumer Perceived Ethicality as a Guideline for Corporate Social Responsibility Strategy: A Commentary Essay. Journal of Business Research, 63, 263-264. http://dx.doi.org/10.1016/j.jbusres.2009.04.021
[32] Becchetti, L., Castelli, A. and Hasan, I. (2009) Investment-Cash Flow Sensitivities, Credit Rationing and Financing Constraints in Small and Medium-Sized Firms. Small Business Economics, 35, 467-497.
[33] Cormier, D. and Magnan, M. (1997) Investors’ Assessment of Implicit Environmental Liabilities: An Empirical Investigation. Journal of Accounting and Public Policy, 16, 215-241.
[34] Hassel, L., Nilsson, F. and Nyquist, S. (2005) The Value Relevance of Environmental Performance. European Accounting Review, 14, 41-61. http://dx.doi.org/10.1080/0963818042000279722
[35] Wahba, H. (2008) Does the Market Value Corporate Environmental Responsibility? An Empirical Examination. Corporate Social Responsibility and Environmental Management, 15, 89-99. http://dx.doi.org/10.1002/csr.153
[36] Anton, W.R.Q., Deltas, G. and Khanna, M. (2004) Incentives for Environmental Self-Regulation and Implications for Environmental Performance. Journal of Environmental Economics and Management, 48, 632-654.
[37] Hernández-Murillo, R. and Martinek, C. (2009) Corporate Social Responsibility Can Be Profitable. The Regional Economist, Federal Reserve Bank of St. Louis, April, 4-5.
[38] Ruf, B.M., Muralidhar, K., Brown, R.M., Janney, J.J. and Paul, K. (2001) An Empirical Investigation of the Relationship between Change in Corporate Social Performance and Financial Performance: A Stakeholder Theory Perspective. Journal of Business Ethics, 32, 143-156.
[39] Sen, S. and Bhattacharya, C.B. (2001) Does Doing Good Always Lead to Doing Better? Consumer Reactions to Corporate Social Responsibility. Journal of Marketing Research, 38, 225-244.
[40] Becker-Olsen, K.L., Cudmore, A.B. and Hill, P.R. (2006) The Impact of Perceived Corporate Social Responsibility on Consumer Behavior. Journal of Business Research, 59, 46-53.
[41] Berens, G., Van Riel, C. and Van Bruggen, G. (2005) Corporate Associations and Consumer Product Responses: The Moderating Role of Corporate Brand Dominance. Journal of Marketing, 69, 35-48.
[42] Bhattacharya, C.B. and Sen, S. (2004) Doing Better at Doing Good. California Management Review, 47, 9-24. http://dx.doi.org/10.2307/41166284
[43] Lichtenstein, D.R., Drumwright, M.E. and Braig, B.M. (2004) The Effect of Corporate Social Responsibility on Customer Donations to Corporate-Supported Nonprofits. Journal of Marketing, 68, 16-32. http://dx.doi.org/10.1509/jmkg.
[44] Muñoz, F.F., Encinar, M.I. and Cañibano, C. (2012) On Economics, Ethics, and Corporate Social Responsibility. Modern Economy, 3, 355-363.
[45] Earle, R. (2000) The Emerging Relationship between Environmental Performance and Shareholder Wealth. Assabet Group. http://ww.assabetgroup.com
[46] Jensen, M.C. (2002) Value Maximization, Stakeholder Theory, and the Corporate Objective Function. Business Ethics Quarterly, 12, 235-256. http://dx.doi.org/10.2307/3857812
[47] Holman, W.R., Randoloph, N.J. and Singer, D. (1985) The Impact of Corporate Social Responsiveness on Shareholder Wealth. In: Lee, E., Ed., Preston Research on Corporate Social Performance and Policy, Vol. 7, Elsevier Science & Technology Books, Greenwich, 137-152.
[48] Yermack, D. (2006) Golden Handshakes: Separation Pay for Retired and Dismissed CEOs. Journal of Accounting and Economics, 14, 237-256. http://dx.doi.org/10.1016/j.jacceco.2006.01.001
[49] Barnea, A. and Rubin, A. (2008) Corporate Social Responsibility as a Conflict between Owners.
[50] Palmer, K., Oates, W. and Portney, P. (1995) Tightening Environmental Standards: The Benefits-Cost or No-Cost Paradigm? Journal of Economic Perspectives, 9, 119-132.
[51] Belu, C. (2009) Ranking Corporations in Terms of Sustainable and Socially Responsible Practices. Sustainable Development, 17, 257-268. http://dx.doi.org/10.1002/sd.390
[52] Hull, C.E. and Rothenberg, S. (2008) Firm Performance: The Interactions of Corporate Social Performance with Innovation and Industry Differentiation. Strategic Management Journal, 29, 781-789.
[53] González-Bravo, M.I. and Mecaj, A. (2011) Structural and Evolutionary Patterns of Companies in a Financial Distress Situation. Advances in Decision Sciences, 2011, Article ID: 928716. http://dx.doi.org/10.1155/2011/928716
[54] Mattingly, J.E. and Berman, S.L. (2006) Measurement of Corporate Social Action: Discovering Taxonomy in Kinder Lydenberg Domini Ratings Data. Business and Society, 45, 20-46. http://dx.doi.org/10.1177/0007650305281939
[55] Strike, V.M., Gao, J. and Bansal, P. (2006) Being Good While Being Bad: Social Responsibility and the International Diversification of US Firms. Journal of International Business Studies, 37, 850-862.
[56] Godfrey, P.C., Merrill, C.B. and Hansen, J.M. (2009) The Relationship between Corporate Social Responsibility and Shareholder Value: An Empirical Test of the Risk Management Hypothesis. Strategic Management Journal, 30, 425-445.
[57] Kacperczyk, A. (2009) With Greater Power Comes Greater Responsibility? Takeover Protection and Corporate Attention to Stakeholders. Strategic Management Journal, 30, 261-285.
[58] Arora, P. and Wadwarkar, R. (2011) Corporate Governance and Corporate Social Responsibility (CSR): The Moderating Roles of Attainment Discrepancy and Organization Slack. Corporate Governance: An International Review, 19, 136152. http://dx.doi.org/10.1111/j.1467-8683.2010.00843.x
[59] Griffin, J. and Mahon, J. (1997) The Corporate Social Performance and Corporate Financial Performance Debate. Business and Society, 36, 5-31.
[60] Neophytou, E. and Mar Molinero, C. (2004) Predicting Corporate Failure in the UK: A Multidimensional Scaling Approach. Journal of Business Finance and Accounting, 31, 677-710. http://dx.doi.org/10.1111/j.0306-686X.2004.00553.x
[61] Kruskal, J.B. and Wish, M. (1984) Multidimensional Scaling. Sage, London.
[62] Peña, D. (2002) Análisis de Datos Multivariantes. MacGraw Hill, New York.
[63] Kruskal, J.B. (1964) Nonmetric Multidimensional Scaling: A Numerical Method. Psychometrika, 29, 115-129. http://dx.doi.org/10.1007/BF02289694

Copyright © 2023 by authors and Scientific Research Publishing Inc.

Creative Commons License

This work and the related PDF file are licensed under a Creative Commons Attribution 4.0 International License.