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

Abstract

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.