Does government initiated corporate social responsibility lower the default risk? Evidence from the targeted poverty alleviation campaign in China

This study empirically documents a negative relationship between firms' participation in the government-initiated targeted poverty alleviation (TPA) campaign and default risk. The results hold after accounting for potential endogeneity. We adopt the share of firms' senior managers with childhood famine experience and average participation rate of peer firms as instrument variables and conduct a set of robustness checks. Moreover, such an effect is more significant for firms with a higher demand for political connections and located in areas with a higher level of fiscal pressure. Further research finds that firms participating in the TPA campaign ease financing constraints by receiving more government subsidies and positive media coverage, which leads to lower default risk. We suggest that firms' participation in the TPA campaign not only contributes to the poverty alleviation but also helps mitigate default risk and thus realize the win-win situation of firms' and social benefits.