Corporate Social Responsibility and Financial Risk: Exploring Default Risk in Indian Firms
Corporate Social Responsibility and Financial Risk: Exploring Default Risk in Indian Firms

Summary/Abstract: This paper examines the impact of corporate social responsibility (CSR) expenditure on default risk for Indian firms during the period from 2015 to 2021. Using distance to default (DTD) and probability of default (PD) at different time horizons as proxies for default risk, we find that CSR expenditure is negatively related to default risk. This indicates that CSR engagement enhances a firm’s reputation and financial stability, thereby reducing the likelihood of default. Surprisingly, we find that this relationship is less pronounced for group-affiliated firms, as stand-alone firms rely more on CSR to establish market credibility. Our findings highlight the strategic importance of CSR compliance, emphasizing its role in risk management and financial resilience. Our study provides insights for policymakers and managers in emerging economies, underscoring how mandatory CSR can foster a more sustainable and risk-averse corporate environment, particularly for firms without the support of business group affiliation.

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