Can corporate Social Responsibility Contribute to Bankruptcy Prediction? Evidence from Croatia

Abstract

Background/Purpose: Companies are becoming aware of the fact that corporate social responsibility (CSR) is becoming the imperative of their sustainable business model despite the potential costs it could generate. Researchers are mostly focused on estimating the relationship between CSR and financial performance where most of the findings indicate their positive relationship. This paper expands existing research and focuses on the relationship between CSR and the risk of bankruptcy using the data from 102 midsize and large companies from non-financial sectors using the data for four years. Research expands existing studies on the EU level according to the fact that most of the existing studies are performed among US companies.
Method: Descriptive statistics and SEM-PLS methodology was used to compare and analyze financial data with data collected from 7 groups of stakeholders.
Results: Research results indicate that the relation between CSR and the risk of bankruptcy is negative.
Conclusion: Becoming a socially responsible company is in the best interest of all stakeholders because CSR activities contribute to financial stability and maintenance of going concern assumption.

Keywords: Corporate social responsibility, Bankruptcy prediction, Altman Z’ score, SEM-PLS methodology