Corporate social responsibility and forward default risk mediated by financial performance and goodwill

In today's business environment, corporate social responsibility (CSR) has become an increasingly significant factor for firms. This study is driven by the motivation to add to the current literature by investigating the mediating elements that explain the relationship between CSR and forward default risk. In this paper, we attempt to identify the important mediators and give a more comprehensive explanation of this connection by a thorough assessment of the available literature and empirical research. This study explored the relationship between corporate social responsibility and forward default risk through financial performance and goodwill. The study sample consisted of constituents of Standard and Poor's (S&P) 500 index. It was found from the results of the study that corporate social responsibility has an effect on forward default risk through goodwill and financial performance. The direct and indirect effect of CSR on forward default risk is more enhanced in a 1-year period, as the effect on 3-year forward default risk is lower. Similar results are found during a period of economic upswing; however, there is no mediation in CSR and 1-year forward default risk by goodwill. This study has some policy implications. Overall, the study adds to the growing body of literature (stakeholder theory and corporate finance theory) on the relationship between CSR and the financial aspect of firms and highlights the importance of considering CSR in financial decision-making and risk management.