CSR assurance practice and financial distress likelihood: evidence from India

PurposeThe purpose of this study is to examine the effect of corporate social responsibility assurance practice (CSRAP) on the financial distress likelihood of listed firms in India. It uses the signalling theory to interpret the relationship among the variables of the study.Design/methodology/appro...

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Bibliographic Details
Published in:Meditari accountancy research 2022-11, Vol.30 (6), p.1470-1492
Main Authors: Kofi Mintah Oware, Appiah, Kingsley
Format: Article
Language:English
Subjects:
Assurance services
Asymmetry
Bankruptcy laws
Decision making
Hypotheses
Insolvency
Investments
Investors
Law
Literature reviews
Social responsibility
Stock exchanges
Sustainable development
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Summary:PurposeThe purpose of this study is to examine the effect of corporate social responsibility assurance practice (CSRAP) on the financial distress likelihood of listed firms in India. It uses the signalling theory to interpret the relationship among the variables of the study.Design/methodology/approachThe study used the Indian stock market as the testing grounds and applied probit and panel probit regression to examine the data set with 800 firm-year observations from 2010 to 2019.FindingsThe study’s first findings show that firms with an assurance service have a negative correlation and are less likely to stay in financial distress situations for an extended period. However, corporate social responsibility (CSR) assurance has a positive but weak correlation with insignificance with financial distress likelihood of firms in India. The authors also find that the engagement of CSR assurance and level of assurance (limited assurance) does not cause a change in a firm financially distress likelihood of firms in India. However, as assurance service providers, auditing firms are more likely to reduce a firm’s likelihood of financial distress. Finally, the study shows that CSRAP (CSR assurance, assurance service providers and level of assurance) does not moderate the association between CSR expenditure and financial distress likelihood of listed firms in India.Originality/valueThe study findings are the first to examine the level of assurance and financial distress of firms according to the authors’ knowledge. This study also adds new knowledge to the factors that cause or reduces the financial distress of listed firms, including CSRAPs.
ISSN:2049-372X
2049-3738
DOI:10.1108/MEDAR-10-2020-1055