CSR Expenditures, Financial Distress Prediction, and Firm Reputation: A Pathway Analysis

  • Gavrila Adinata Satya Wacana Christian University
Keywords: CSR expenditures, firm reputation, financial distress, Altman Z-Score, path analysis


This study is aimed to find the empirical evidence of the relationship between CSR expenditures and financial distress probability of 85 Indonesian’s manufacturing public company listed on BEI. A quantitative method was used to analyze the direct relationship between CSR expenditures and financial distress probability and the indirect effect of the two variables intervened by firm reputation. Observation data was obtained from each of the company’s annual and financial report from the official website of BEI, particularly between the years of 2014 to 2016. Through path analysis method, the results showed that there was an insignificant positive direct relationship between CSR expenditures and financial distress probability of 4.9%. The indirect effect between the two variables also showed the value of 3.7%, but the relationship was rather negative. In total, an increase in one standard deviation of CSR expenditures increases the probability of a firm to be financially distressed by 1.2%. However, with the value of 45.1%, it is proven that CSR expenditures and firm reputation has a positive relationship.


Download data is not yet available.


Adegbite, A., Amiolemen, S., Ologeh, I., & Oyefuga, I. (2012). Sustainable Development Policy and Corporate Social Responsibility in Business Organizations in Nigeria. Journal of Sustainable Development, 5(6).
Al-Hadi, A., Chatterjee, B., Yaftian, A., Taylor, G., & Hasan, M. (2017). Corporate Social Responsibility Performance, Financial Distress, and Firm Life Cycle: Evidence from Australia. Journal of Accounting and Finance.
Barnett, M., Jermier, J., & Lafferty, B. (2013). Corporate Reputation: The Definitional Landscape. Palgrave Macmillan Journal, 9(1).
Bashir, A., Javed, A., & Iqbal, S. (2015). Business Failures Prediction in Karachi Stock Exchange. Indian Journal of Management Science, 5(1).
Brooks, L. Z. (2016, April 30). Can Corporate Social Responsibility Reduce the Propensity of Future Bankruptcy? SSRN. Retrieved February 4, 2017, from SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2812669
Burk, E. (1999). Corporate Community Relations: The Principle of the Neighbor of Choice. Westport: CT. Preager.
Caroll, A. B. (1991). The Pyramid of Corporate Social Responsibility: Toward the Moral Management of Organizational Stakeholders. Business Horizons, 39-48.
Caroll, A., & Shabana, K. (2010). The Business Case for Corporate Social Responsibility: A Review of Concepts, Research, and Practice. International Journal of Management Reviews, 12(1).
Casado, A., Yanez, E., & Pelaez, A. (2016). The Value of Corporate Reputation in the Bankruptcy Risk. Journal on Systemics, Cybernetics, and Informatics.
Celli, M. (2015). Can Z-Score Model Predict Listed Companies Failures in Italy? An Empirical Test. International Journal of Business and Management, 10(3).
Chan, K., & Chen, N.-F. (1991). Structural and Return Characteristics of Small and Large Firms. Journal of Finance, 46(4), 1467-1484.
Chun, R. (2005). Corporate Reputation: Meaning and Measurement. International Journal of Management Reviews, 7(2).
CIMA. (2010). Corporate Reputation: Perspectives of Measuring and Managing Principal Risk. London: CIMA.
CSRHub. (n.d.). CSRHUB: Sustainability Management Tools. Retrieved February 3, 2017, from https://www.csrhub.com/content/csrhub-ratings-methodology/
Deborah, M. B., E.K., W. R., Love, M. C., & Grace, A. C. (2017). Corporate Social Responsibility as a Determinant of Sustainability of Small Medium Enterprises (SMEs). Covenant Journal of Business & Social Sciences (CJBSS), 8(2).
Feldman, P., Bahamonde, R., & Bellido, I. (2014). A New Approach For Measuring Corporate Reputation. Real Academica Espanola, 54(1).
Freeman, R. E. (1984). Strategic Management: A Stakeholder Approach. Boston: Pitman.
Ghozali, I. (2017). Aplikasi Analisis Multivariate dengan Program SPSS (8 ed.). Semarang: Badan Penerbit Universitas Diponegoro.
Godfrey, P. (2005). The Relationship between Corporate Philanthropy and Shareholder Risk: A Risk Management Perspective. Academy of Management Review, 30, 777-798.
Gois, A., de Lima, G., De Luca, M., & da Silva, E. (2017). The Effect of Corporate Reputation on Market Risk and Bankruptcy Risk. Journal of International Accounting Research.
Goss, A. (2009). Corporate Social Responsibility and Financial Distress. Administrative Sciences Association of Canada (ASAC).
Hawkins, D. E. (2006). Corporate Social Responsibility - Balancing Tomorrow's Sustainability and Today's Profitability. Palgrave Macmillan.
Hogan, K., T. Olson, G., & Sharma, R. (2014). The Role of Corporate Philanthropy on Ratings of Corporate Social Responsibility and Shareholder Return. Journal of Leadership, Accountability and Ethics, 11(3), 108-125.
Hohnen, P. (2007). Corporate Social Responsibility: An Implementation Guide for Business. Winnipeg: International Institute for Sustainable Development.
Isaksson, L. (2012). Corporate Social Responsibility: A Study of Strategic Management and Performance in Swedish. Goldcoast. Queensland: Bond University. Retrieved November 9, 2018, from http://epublications.bond.edu.au/th eses/68/
Kakabadse, N. K., Rozuel, C., & Lee-Davies, L. (2005). Corporate Social Responsibility and Stakeholder Approach: A Conceptual Review. International Journal of Business Governance and Ethics, 1(4), 277-302.
Kanwal, M., Khanam, F., Nasreen, S., & Hameed, S. (2013). Impact of Corporate Social Responsibility on the Firm's Financial Performance. IOSR Journal of Business and Management.
Marcelinda, S. O., Paramu, H., & Puspitasari, N. (2014). Analysis of the Accuracy of Altman Z-Score Bankruptcy Prediction Model in Manufacturing Companies Listed in Indonesia Stock Exchange. e-Journal Ekonomi Bisnis dan Akuntansi, 1(1).
OECD. (2001). Corporate Responsibility: Private Initiatives and Public Goals. Paris: OECD.
Olobatuyi, M. E. (2006). A User's Guide to Path Analysis. Lanham, Maryland: University Press of America Inc.
O'Neill, B., Sorhaindo, B., Prawitz, A., Kim, J., & Garman, E. (2006). Financial Distress: Definition, Effects, and Measurement. Consumer Interests Annual, 52, 1-8.
Opler, T., & Titman, S. (1994). Financial Distress and Corporate Performance. Journal of Finance, 49(3), 1015-1040.
Outecheva, N. (2007). Corporate Financial Distress: An Empirical Analysis of Distress Risk. Bamberg: Difo-Druck GmbH.
Rindova, V., Williamson, I., & Petkova, A. (2010). Reputation as an Intangible Assets: Reflections on Theory and Methods in Two Empirical Studies of Business School Reputation. Journal of Management, 36(3).
Sarwono, J. (2007). Analisis Jalur untuk Riset Bisnis dengan SPSS. Yogyakarta: CV Andi Offset.
Streiner, D. (2005). Finding Our Way: An Introduction to Path Analysis. The Canadian Journal of Psychiatry, 50(2).
Trotta, A., & Cavallaro, G. (2012). Measuring Corporate Reputation: A Framework for Italian Banks. International Journal of Economics and Finance Studies, 4(2).
Vilanova, Marc & Lozano, Josep & Arenas, Daniel. (2008). Exploring the Nature of the Relationship Between CSR and Competitiveness. Journal of Business Ethics. 87. 57-69. 10.1007/s10551-008-9812-2.
Waddrock, S., & Graves, S. (1997). The Corporate Social Performance-Financial Performance Link. Strategic Management Journal, 18, 303-319.
Whitaker, R. (1999). The Early Stages of Financial Distress: Bankruptcy Costs and the New Bankruptcy Code. Journal of Finance, 23(2), 123-133.