Corporate Social Responsibility And Financial Distress

Using both multivariate regressions, simultaneous nonlinear equations and a discrete time hazard model, I find that the level of CSR (Corporate Social Responsibility) in a firm, proxied by KLD scores, is a significant determinant of distress, even after controlling for previously identified drivers of firm distress. The relationship is robust to the endogeneity of CSR investments and free cash flow. The near monotonic relationship between CSR investments and distress suggests that there is informational value in the extra financial metrics used by CSR advocates.