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.
