Does corporate social responsibility engagement benefit distressed firms? The role of moral and exchange capital
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Date
2018
Authors
Gupta, K.
Krishnamurti, C.
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Journal article
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Pacific Basin Finance Journal, 2018; 50:249-262
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Abstract
Extant literature supports the view that Corporate Social Responsibility (CSR) engagement could potentially act as a risk mitigation device. We extend this literature to address the issue of whether CSR engagement could benefit firms which are already in bankruptcy. A unique feature of our empirical tests is the decomposition of CSR into two components – moral capital and exchange capital. We find that moral capital is associated with the likelihood of a distressed firm emerging from bankruptcy. Further, moral capital appears to reduce the number of days a distressed firm spends in bankruptcy. Our empirical evidence also suggests that moral capital increases the likelihood that a distressed firm successfully negotiates a pre-packaged agreement with its creditors. Finally, our empirical results indicate that the exchange capital component of CSR is positively related to the probability of procuring debtor-in-possession financing by a distressed firm whilst in bankruptcy. Overall, our results imply that both moral and exchange capital components of CSR play a role in facilitating a firm's emergence from bankruptcy.
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Copyright 2016 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/). (http://creativecommons.org/licenses/by-nc-nd/4.0/)