The Effect of Corporate Social Responsibility on t

2024年3月7日发(作者：2016款新轩逸报价)

The Effect of Corporate Social Responsibility on

the Probability of Financial Distress for the Listed

Companies in China Shenzhen Stock ExchangeYugan Li, Wushi YeGuangdong Peizheng CollegeAbstract: This article presents the relationship between “Corporate Social

Responsibility” and the probability of financial distress using data from Shenzhen

stock exchange from 2010 to 2017. Eventually, we found the better companies’

CSR performance, the lower probability of the financial distress. This relationship

strengthens when company’s net profit is negative but weaken when its net profit is

positive. The research indicated the exist profit and appropriate percentage of debt

are critical to firms’ operation. If firms are in deficit, it cannot survive even making

great effort on CSR investment. Therefore, this article suggests managers enhance

CSR performance on the premise of maintaining a certain ds: Corporate Social Responsibility; Altman Z-score; Financial DistressDOI: 10.47297/wspciWSP2516-252724.202105031. Research Question and Statement of HypothesesFirstly, we want to determine whether CSR has influence on the probability of

financial distress. Next, if there is relation among CSR and the possibility of

financial distress, whether higher CSR will increase the possibility of distress. And

what if we divided the data into two situations like positive net profit and negative

net profit. Last, there is blank in this field in China, this paper is written for future

contribution that Chinese companies can choose suitable CSR policy to control

their financial distress research question about this paper is “Is corporate social responsibility has

effect on the probability of financial distress?”

Hypotheses:

About the author: Yugan Li (1997-11), female, ethnic Han, native place: Jiangxi, China,

Economic School of Guangdong Peizheng College, teaching assistant, master’s degree, re-search direction: corporate finance and futures Ye (1997-07), female, ethnic Han, native place: Guangdong, China, master’s degree,

research direction: corporate social responsibility.125

Creativity and Innovation Vol.5 No.3 2021H1: CSR has impact on the probability of financial distress.H2: The better CSR performance, the lower probability of financial distress.

H3: Positive net profit can strengthen the effect of CSR on the probability of

financial distress.

2. Data and Model Collection

The data of financial distress and all control variables were collected from

RESSET database and data of CSR was gained from HEXUN database. Integrate

the data from two databases, we can get 8222 samples from 1283 normal firms

(except ST and PT firms) from Shenzhen stock exchange from all industries. We

added and calculated the score of all variables and used SPSS to analyze them

finally. For CSR, we have used data of “Runling CSR rating” from HEXUN

database, which is famous for developing and releasing ESG scores in China.

To quantify the financial distress, at beginning, we found a famous model that

published by a professor of finance, Edward I. Altman who use a linear combination

of a set of financial ratios to predict company’s possibility of bankruptcy within

two years (Altman, 1968). But after testing, we found there are many differences

between Chinese and western countries, thus, we chose a new model called Altman

ZChina-score (Zhang, Altman, Yen, 2010) to continue our work.

There are three situations for ZChina-score: a) safe zone, in other words, healthy

firms, ZChina-score is larger than 0.9; b) the “Grey” zone It has the potential of

distress. When score is higher than 0.5 but smaller than 0.9; c) Distressed. The

worst situation that score fall below 0.5, firms face high prospect of financial

distress and it may turn to bankruptcy soon.

To confirm the influence of CSR on the probability of financial distress, we

use the CSR as the independent variable and the probability of financial distress

as dependent variable. Next, there are some control variables, that have effect

on financial distress but disconnected to our topic, like firm size, leverage, cash,

net profit, quick ratio and so on. We use multi-variable discriminant analysis to

demonstrate our hypotheses and the multi-variable linear regression model is as

followed:Where

Lev stands for the leverage ratio and t uses to distinguish the data from

different year. Cash=Cash+ Cash Equivalents /Total Asset, quckrt means quick

ratio. Curtolia is current liability to total liability. Ldbequ is long debt divide equity.

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The Effect of Corporate Social Responsibility on the Probability of Financial Distress for the Listed Companies in China Shenzhen Stock ExchangeDbastrtA for debt asset ratio. NPM is short for net profit margin which is equal to

net income/sale revenue.3. ResultsIn this research, we use Pearson correlation analysis to analyze the relationship

between Altman Z-score and CSR for the listed companies in China Shenzhen

Stock Exchange from 2010 to 2017. According to Table 1, the result shows that the

estimated model can explain 57.2% of the observed 1 Model SummaryThe ANOVA table shows the overall significance of the regression model,

where the F statistic is 1099.941, P < 0.001 and at the significant level of 0.01, the

fitted multiple linear regression equation can be statistically 2 ANOVAFrom our reasearch, the correlations of Altman-China Score (DV) and CSR

(IV) is weak positive since the |r|=0.264. Similarly, at 1% significant level, cash,

quick ratio, and current liability to total liability ratio (CVs) have weak positive

correlation with Altman-China Score while long debt to equity ratio (CV) has weak

negative correlation instead. In addition, debt to equity ratio, net profit, debt to asset

ratio, and firm size (CVs) have moderate negative correlation with Altman-China

Score while NPM has moderate positive correlation ’ve verified it in four aspects: (1) There is a linear relationship between

independent variables and dependent variables; (2) The residuals follow normal

distribution; (3) The residual has homogeneity of variance; (4) There is no multi-col-linearity between independent ing to Partial Regression Plot, CSR (CV) presents a certain linear

relationship with the Altman-China Score (DV), which satisfies condition (1).

From the histogram, the standardized residuals obey the normal distribution with

mean value of 0 and standard deviation of 1. At the same time, it can be seen from

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Creativity and Innovation Vol.5 No.3 2021the Normal P-P Plot of Regression Standardized Residual that the data is basically

distributed around the diagonal line so it can be judged that the residual is basically

subject to the normal distribution, which satisfies the condition (2). According to

the scatter-plot drawn by the standardized residual and the standardized predicted

value, the scatters’ fluctuation range of the standardized residual remains basically

stable and does not change with the change of the standardized predicted value.

It can be considered that the homogeneity of variance is basically satisfied, which

meets the condition (3). The correlation coefficients between CVs are lower than

0.7, and the |P|s are all more than 0.05, indicating that the correlation between

independent variables is weak, and it can be considered that there is no col-linearity,

meeting the condition (4).

As the CV——Net profit is a binary variable, Pearson correlation coefficient is

not suitable for this investigation. At the same time, the tolerances of each variable

are larger than 0.2 and VIF is smaller than 10, indicating that there is no col-linearity. Therefore, the final equation can be reasonably written as:4. Discussions, Limitations, and RecommendationsBased on our result, we know Altman ZChina-score (following as “ZChina” ) has

a weak correlation with independent variable CSR. The reason is the awareness

of CSR is relatively low among investors. Chinese investors pay more attention

on short-term incomes but ignore to check whether these “high-return” firms are

environmental-friendly or employee-caring. Managers are reluctant to emphasize

CSR because it may worth noting in a short period, which harms managers’

KPI. However, from the result, we can still see as firms strengthen their CSR

performance, their ZChina raise and the higher ZChina is, the lower possibility of

financial distress.

Firms with higher CSR scores are more transparent that disclose all the

essential statements and social welfare donation to public. In this way, investors

feels more reliable and confident about the firm they invest so it helps firms to raise

capital from capital market. In other words, firms which encourage CSR will keep

high reserve cash. These money helps firms pass through financial deficit or even

boarder their business safely.

When net profit is positive, beta between CSR and ZChina is 0.148 and when

net profit is negative, ZChina is 0.078 which is lower. We think if firms stop making

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The Effect of Corporate Social Responsibility on the Probability of Financial Distress for the Listed Companies in China Shenzhen Stock Exchangeprofits, even invest in CSR greatly may not save themselves. It give us two crucial

implications. One is that the priority of an enterprise should always be making

money. The other is that CSR can strengthen the power of healthy firms but never

decide one insolvency firm’s coefficient and correlations of NPM (Net Profit Margin) is higher than

others control variables. This proves making profit should be the priority of

company again. For the rest a few variables, like debt to equity ratio (leverage

ratio), firm size, and debt to asset ratio, their correlations and coefficients with ZChina

is negative but quite strong. Almost all of them are relative to debt. Thus, too much

debt hurt ZChina, causing more serious financial distress. Besides, cash ratio, quick

ratio, current liability to total liability ratio, and long-term debt to equity don’t play

important roles. It implies that cash giving or dividend policy are probably not that

significant in possible-bankruptcy judgement for a further improve the research, we think we should compare the data before-

and after- the COVID-19 to see whether CSR plays a more important role during

economic downturn. Moreover, we are expected to test whether ZChina-score is still

suitable for current situation in China. In addition, later researchers are suggested to

divide the data into different industry groups to see its effects recommend firms emphasizing more on CSR. Managers should control the

policy about CSR internally from a long-term development perspective. When bank

is deciding whether to lend money to this firm, our model can work as a guideline

to optimize the choice. Likewise, banks can use our model to monitor companies

with loans for whether they have good social responsibility. The relationship

between CSR and financial distress can help lenders, managers and investors to

select stocks which prevents them from suffering large amount of losses from

companies’ scandals. For government departments which monitor the market

conditions closely, we advise them to highlight the power of CSR and advocate

both firms and investors to increase concerns about corporate social responsibility.

References[1] Altman, I, E. (1968). Financial ratios, discriminant analysis and the prediction of

corporate bankruptcy.

Journal of Finance, 23(4), 589-609.[2] Zhang, L., Chen, S., Yen, J., & Altman, E, I. (2010). Corporate Financial Distress

Diagnosis in China.

New York University Salomon Center, Working Paper.

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