Golden Geese or Black Sheep: Are Stakeholders the Saviors or Saboteurs of Financial Distress?

Is stakeholder management crucial for financial distress? Unlike the prior literature that shows the mitigating influence of corporate social responsibility (CSR) on distress risk, we find that social stakeholder initiatives can increase the likelihood of future financial distress. Using a quasi-experiment, we find that this relationship is likely to be causal. We further show that managerial focus and financial constraints are two possible channels through which the social dimension could impact distress. Investors should hence view firms’ CSR investments with caution.