Does Corporate Governance Shape the Relationship between Corporate Social Responsibility Performance and Financial Distress in Large European Companies?
Purpose: This paper aims to investigate the moderating effect of corporate governance on the relationship between corporate social responsibility (CSR) performance and financial distress risk. Design/Methodology/Approach: The empirical analysis comprises a panel data set of 2673 observations over the years from 2010 to 2018 for European companies listed in the STOXX Europe 600. Ordinary least squares multiple regression analysis model was used to test the study hypothesis. Findings: The findings suggest that higher CSR performance significantly reduces the financial distress risk of the firm. These results were robust after several statistical checks. In addition, the link between CSR performance and financial distress risk is moderated by corporate governance. In addition, we show that the negative effect of CSR performance on financial distress risk is more pronounced for firms with a good corporate governance practice. Practical Implications: This paper challenges the intuitive expectation that CSR activities impose unnecessary additional costs to firms, which affects performance. Originality/Value: It is suggested that the relationship between CSR and financial distress, in Europe, is different from the one in the USA. Conclusively, our principal result shows that firms with higher CSR performance exhibit a lower degree of financial distress risk for the European sample.