The Lahore Journal
of Business

The Lahore Journal
of Business

Lahore Journal of Business

(HEC recognized journal in “Y” category)

The Lahore Journal of Business is aimed at providing a specialized forum for dissemination of qualitative and quantitative research in various areas of business administration. The LJB invites researchers, policy makers and analysts to submit original theoretical and empirical papers that explore and contribute to the understanding of various areas in the business domain. The Journal aims at bringing together state-of-art research findings, particularly from emerging markets, in various business disciplines including (but not limited to) accounting, banking, management, marketing, finance, investments, human resource management and organizational behavior.

Revisiting the CSR and Financial Distress Nexus: Insights from Mediation of Agency Costs in an Emerging Market

https://doi.org/10.35536/ljb.2025.v12.i2.a2
  • Rabia Farooq
  • rabiafarooq092@gmail.com
  • MS Scholar Department of Management Sciences, COMSATS University Islamabad, Pakistan
  • Naeem Khan
  • drnaeemkhan87@gmail.com
  • Assistant Professor Department of Management Sciences, AL Ghazali University Karachi, Pakistan
  • Muhammad Haroon Rasheed
  • haroon.rasheed@uos.edu.pk
  • Lecturer Malik Firoz Khan Noon Business School, University of Sargodha, Pakistan
  • Ahsen Saghir
  • ahsensaghir@gmail.com
  • Assistant Professor Department of Management Sciences, Abasyn University Islamabad, Pakistan

Submitted

November 22, 2023

Accepted

November 22, 2023

Accepted

November 22, 2023

  • Received
  • 7th January 2025
  • Revised
  • 24th April 2025
  • Accepted
  • 7th July 2025
  • Download
Full text PDF

Abstract

In a struggling and volatile economy like Pakistan, studying corporate financial distress (FD)
is critically important. The current sustainability-oriented economic dynamics have made the connection
between corporate social responsibility (CSR) and FD particularly relevant, as CSR can enhance business
resilience, stakeholder trust, and risk management. Understanding this relationship helps determine
whether socially responsible businesses are better equipped to handle financial crises. Therefore, this study
aims to analyze the impact of CSR on FD while examining the mediating role of agency costs (AC). The
sample includes 257 non-financial companies registered on the Pakistan Stock Exchange from 2008 to
2022. The generalized method of moments technique is used for hypothesis testing. The results reveal a
significant link between CSR and FD, showing that investment in CSR reduces FD. Additionally, the
study finds that CSR negatively influences AC, indicating that investment in CSR also lowers AC. The
findings establish that AC mediates the relationship between CSR and FD.

Keywords

Financial distress

corporate governance

agency costs

corporate social responsibility

Pakistan

This work is licensed under LJB.

  • Citation

Farooq, R., Khan, N., Rasheed, M. H., & Saghir. A. (2025). Revisiting the CSR and Financial Distress Nexus: Insights from Mediation of Agency Costs in an Emerging Market. The Lahore Journal of Business, 12(2), 33-56.

https://doi.org/10.35536/ljb.2025.v12.i2.a2

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