Corporate Social Performance as a Determinant of Firm Financial Distress: Insights from the Johannesburg Stock Exchange

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dc.contributor.advisorToerien, Francois
dc.contributor.authorBergstedt, Nasif
dc.date.accessioned2025-06-23T13:19:50Z
dc.date.available2025-06-23T13:19:50Z
dc.date.issued2025
dc.date.updated2025-06-23T13:13:05Z
dc.description.abstractThis study examines how Corporate Social Performance (CSP) levels affect the likelihood of firm financial distress in an emerging market context across economic cycles. The significance of this research lies in addressing the gaps in existing literature, which predominantly focuses on mature markets and often overlooks the varying impacts of CSP beyond crisis periods. Using the De la Rey K-score to measure firm Bankruptcy Likelihood (BL) and Thomson Reuters Eikon Refinitiv Environmental, Social and Governance (ESG) scores for CSP assessment, panel regression analysis is conducted on a sample of 321 firmyear observations from non-financial and non-real estate companies listed on the Johannesburg Stock Exchange (JSE) in South Africa over the period 2008 to 2023. The analysis controls for firm leverage, size, profitability, liquidity and time-fixed effects. The key findings are as follows: 1. During upswings, the environmental and social dimensions of CSP do not significantly affect firm BL, aligning with recent research suggesting that high CSP, while fostering loyal stakeholders, may not be crucial when economic conditions are favourable enough to alleviate distress. However, higher aggregated CSP levels increase firm BL, primarily driven by the governance dimension, which is perceived to divert resources and attention from core business operations. 2. Consistent with prior studies, higher social dimension levels of CSP reduces firm BL during downswing periods, emphasising the importance of stakeholder relationships in times of economic instability. In conclusion, bolstering CSP during upswings primarily results in costs, thereby increasing firm BL. However, higher social dimension levels of CSP can mitigate the risk of financial default during subsequent crisis periods. Thus, CSP investments during upswings, although not immediately beneficial, can help balance bankruptcy risk across economic cycles. These findings bear implications for policymakers, corporate management teams, investment practitioners and scholars, offering insights for guiding regulatory efforts, managing firm risk, enhancing investment decisions and future research endeavours.
dc.identifier.apacitationBergstedt, N. (2025). <i>Corporate Social Performance as a Determinant of Firm Financial Distress: Insights from the Johannesburg Stock Exchange</i>. (). University of Cape town ,Faculty of Commerce ,Department of Finance and Tax. Retrieved from http://hdl.handle.net/11427/41475en_ZA
dc.identifier.chicagocitationBergstedt, Nasif. <i>"Corporate Social Performance as a Determinant of Firm Financial Distress: Insights from the Johannesburg Stock Exchange."</i> ., University of Cape town ,Faculty of Commerce ,Department of Finance and Tax, 2025. http://hdl.handle.net/11427/41475en_ZA
dc.identifier.citationBergstedt, N. 2025. Corporate Social Performance as a Determinant of Firm Financial Distress: Insights from the Johannesburg Stock Exchange. . University of Cape town ,Faculty of Commerce ,Department of Finance and Tax. http://hdl.handle.net/11427/41475en_ZA
dc.identifier.ris TY - Thesis / Dissertation AU - Bergstedt, Nasif AB - This study examines how Corporate Social Performance (CSP) levels affect the likelihood of firm financial distress in an emerging market context across economic cycles. The significance of this research lies in addressing the gaps in existing literature, which predominantly focuses on mature markets and often overlooks the varying impacts of CSP beyond crisis periods. Using the De la Rey K-score to measure firm Bankruptcy Likelihood (BL) and Thomson Reuters Eikon Refinitiv Environmental, Social and Governance (ESG) scores for CSP assessment, panel regression analysis is conducted on a sample of 321 firmyear observations from non-financial and non-real estate companies listed on the Johannesburg Stock Exchange (JSE) in South Africa over the period 2008 to 2023. The analysis controls for firm leverage, size, profitability, liquidity and time-fixed effects. The key findings are as follows: 1. During upswings, the environmental and social dimensions of CSP do not significantly affect firm BL, aligning with recent research suggesting that high CSP, while fostering loyal stakeholders, may not be crucial when economic conditions are favourable enough to alleviate distress. However, higher aggregated CSP levels increase firm BL, primarily driven by the governance dimension, which is perceived to divert resources and attention from core business operations. 2. Consistent with prior studies, higher social dimension levels of CSP reduces firm BL during downswing periods, emphasising the importance of stakeholder relationships in times of economic instability. In conclusion, bolstering CSP during upswings primarily results in costs, thereby increasing firm BL. However, higher social dimension levels of CSP can mitigate the risk of financial default during subsequent crisis periods. Thus, CSP investments during upswings, although not immediately beneficial, can help balance bankruptcy risk across economic cycles. These findings bear implications for policymakers, corporate management teams, investment practitioners and scholars, offering insights for guiding regulatory efforts, managing firm risk, enhancing investment decisions and future research endeavours. DA - 2025 DB - OpenUCT DP - University of Cape Town KW - Finance and Tax LK - https://open.uct.ac.za PB - University of Cape town PY - 2025 T1 - Corporate Social Performance as a Determinant of Firm Financial Distress: Insights from the Johannesburg Stock Exchange TI - Corporate Social Performance as a Determinant of Firm Financial Distress: Insights from the Johannesburg Stock Exchange UR - http://hdl.handle.net/11427/41475 ER - en_ZA
dc.identifier.urihttp://hdl.handle.net/11427/41475
dc.identifier.vancouvercitationBergstedt N. Corporate Social Performance as a Determinant of Firm Financial Distress: Insights from the Johannesburg Stock Exchange. []. University of Cape town ,Faculty of Commerce ,Department of Finance and Tax, 2025 [cited yyyy month dd]. Available from: http://hdl.handle.net/11427/41475en_ZA
dc.language.rfc3066Eng
dc.publisher.departmentDepartment of Finance and Tax
dc.publisher.facultyFaculty of Commerce
dc.publisher.institutionUniversity of Cape town
dc.subjectFinance and Tax
dc.titleCorporate Social Performance as a Determinant of Firm Financial Distress: Insights from the Johannesburg Stock Exchange
dc.typeThesis / Dissertation
dc.type.qualificationlevelMasters
dc.type.qualificationlevelMCom
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