The impact of implementing social responsibilities on the risk of financial distress for enterprises in the plastic and chemical production industry listed in the stock market

BANKING ACADEMY FINANCE FACULTY GRADUATION THESIS THE IMPACT OF IMPLEMENTING SOCIAL RESPONSIBILITIES ON THE RISK OF FINANCIAL DISTRESS FOR ENTERPRISES IN THE PLASTIC AND CHEMICAL PRODUCT

BANKING ACADEMY FINANCE FACULTY

GRADUATION THESIS THE IMPACT OF IMPLEMENTING SOCIAL RESPONSIBILITIES ON THE RISK OF FINANCIAL DISTRESS FOR ENTERPRISES IN THE PLASTIC AND CHEMICAL PRODUCTION INDUSTRY LISTED IN THE STOCK

MARKET

PROTESTATION

I, Vu Thu Thao, solemnly declare that this research project is my own work and has been conducted under the scientific guidance of Assoc Prof Dr Tran Thi Xuan Anh The contents and findings of this topic are truthful and have not been previously published in any form The data presented in the tables serving for analysis, comments, and evaluations have been collected by the author from various sources, clearly stated

in the reference section Furthermore, this thesis also incorporates some comments and evaluations from other authors, and different organizations, all of which are appropriately cited and referenced If any fraudulent acitivity are detected, I take full responsibility for the content of my thesis

Best regards,

Thao

Vu Thu Thao

ACKNOWLEDGMENTS

First of all, I would like to express my sincere thanks to all the lecturers at the Banking Academy in general and the teachers in the Faculty of Finance in particular for always enthusiastically and dedicatedly teaching students useful knowledge and experiences so that we can complete the bachelor's program at Banking Academy Moreover, the practical experiences imparted by the teachers in the process of teaching

in the classroom are useful lessons for me to apply in the internship as well as work in the future I would also like to especially thank Assoc Prof Dr Tran Thi Xuan Anh, who directly guided and supported me during the graduation thesis Thanks to her dedication, I was able to complete the thesis most fully

I would also like to express my sincere and deep thanks to the colleagues, departments, and brothers and sisters working at Vietnam Prosperity Commercial Joint Stock Bank - VPBank for facilitating, helping, and teaching me a lot in both professional knowledge and practical experience Thanks to your teaching, I have gained a lot of practical knowledge along with having a correct view of future work

Once again, I sincerely thank all the teachers and seniors at VPBank and wish you all the best of health and success in your work

Best regards,

Thao

Vu Thu Thao

TABLE OF CONTENTS

INTRODUCTION 1

1 The necessity of the topic 1

2 Research objectives 2

3 Subjects and scope of the research 3

4 Research methodology 3

5 Research contributions 4

6 Research Structure 4

Chapter 1: Overview of the impact of CSR implementation on the risk of corporate financial distress 5

1.1 Overview of corporate social responsibility 5

1.1.1 Corporate social responsibility (CSR) concept 5

1.1.2 Measurement of corporate social responsibility 8

1.1.3 Benefits of CSR implementation of enterprises 10

1.2 Overview of the risk of financial distress 12

1.2.1 The concept of financial distress risk 12

1.2.2 Measuring the risk of financial distress 13

1.3 Impact of social responsibility on the risk of corporate financial distress 15

1.3.1 Theoretical basis of the impact of social responsibility on the risk of corporate financial distress 15

1.3.2 Empirical studies on the impact of social responsibility on the risk of financial distress 19

1.4 Research gaps 24

1.5 Research framework proposal 25

1.5.1 Research objectives 25

1.5.2 Research framework 25

Chapter 2: Databases and Research Methods 27

2.1 Databases 27

2.2 Research variable description 27

2.2.1 Financial distress risk - dependent variable 27

2.2.2 Independent variables – Corporate social responsibility 29

2.3 Research methodology 32

2.4 Research model 33

2.5 Research hypothesis 35

Chapter 3: Experimental Research Results 36

3.1 Overview of the implementation of social responsibility of enterprises in the plastic – chemical industry 36

3.1.1 Current status of CSR implementation of enterprises in plastic – chemical manufacturing industry 36

3.1.2 Current status of CSR implementation according to target groups of enterprises in the as-chemical industry 37

3.2 Descriptive statistics 41

3.3 Correlation analysis 42

3.4 Multicollinearity Test 43

3.5 Impact regression results of CSR implementation on FDR 44

3.5.1 Regression results 44

3.5.2 Inspection of FEM model defects 46

3.5.3 Overcoming FEM model defects 47

Chapter 4: Conclusions and recommendations 50

4.1 Conclusion 50

4.2 Recommendations 50

4.3 Limitations of the study 55

4.4 Recommendations for future studies 56

REFERENCES 57

APPENDIX 66

LIST OF ABBREVIATIONS

LIST OF TABLES, CHARTS AND ILLUSTRATIONS

LIST OF TABLE

Table 2 Explain and describe variables in the impact study of CSR on FDR 34 Table 3.1 Statistics describing the variables used in the research model 42 Table 3.2 Correlation coefficient between variables in the study model 43 Table 3.3 VIF variance magnification factor of model 44 Table 3.4 Multivariate regression results impact of CSR on FDR 45 Table 3.5 FEM model heteroskedasticity test results 46 Table 3.6 Results of testing the phenomenon of FEM model autocorrelation 47 Table 3.7 Results of overcoming FEM model defects 47 Table 3.8 Summary of FEM model inspection results 48

LIST OF CHART

Figure 1.3 Impact study framework of CSR on FDR enterprises 26 Figure 3.1 Current status of CSR implementation over the years 36 Figure 3.2 Current status of CSR implementation by target group over the

Figure 3.3 Criteria for evaluating environmental indicators 38 Figure 3.4 Criteria for evaluating labor indicators 39 Figure 3.5 Criteria for evaluating community indicators 40 Figure 3.6 Criteria for evaluating product indicators 41

LIST OF ILLUSTRATIONS

Figure 1.2 Stakeholders according to Freeman (1984) 17

INTRODUCTION

1 The necessity of the topic

The risk of financial distress has long been one of the most important concerns

of businesses when it comes to operations Especially after the 2008 financial crisis, the financial difficulties of businesses highlighted the problem of governance as well as prevention and response to FDR Most previous empirical research on FDR has focused

on the forecast ability and cash flow of investment businesses, with data collected from financial statements (Altman et al., 1977); (Ohlson, 1980) and (Snakewski, 1984) However, as the topic has grown, the research of Lee & Yeh (2004); Deng & Wang (2006) and Fich & Slezak (2008) has argued that the mere use of accounting data is not enough to ensure FDR's predictability and proposed the addition of a group of corporate governance factors

Indeed, when the COVID-19 pandemic hit, disrupting the supply chain of many

of the world's commodity products, stalling production and business, severely affecting the economy, the study of Nguyen Thanh Tung (2020) has shown that this pandemic increased the risk of financial distress of surveyed enterprises in Ho Chi Minh City by 1.55 – 2.25 times Actual data shows that the rate of bankrupt enterprises in our country increased sharply during that period, reaffirming that enterprises only focus on investment business activities, profits are not enough, but also must focus on financial risk prevention activities In addition to the use of financial data, the incorporation of non-financial information is necessary and urgent in the new era

Currently, one of the most interesting non-financial information is the sets of indicators on sustainable development and social responsibility In the world, this is no longer a strange concept and has become an indispensable factor, in parallel with the development of the business economy Implementing social responsibility requires businesses to change the prerequisite goal of maximizing profits and shareholder benefits, instead, they need to balance the interests of stakeholders However, in Vietnam, this concept is still new and has not been really focused by businesses with its importance Though, Vietnam is not out of the trend, and is gradually developing policies and regulations aimed at economic development but accompanied by corporate

In developed countries, the number of studies on social responsibility on different aspects of business is as extensive as that of Margolis & Walsh (2001) on the impact of CSR on business performance, Boubaker et al (2020) provide evidence that CSR has a mitigating effect on FDR, Godfrey et al (2009) shows that CSR helps businesses reduce risks from government intervention However, in our country, the number of research articles on CSR is currently not much, mostly focusing on the performance of enterprises (Ta Thi Thuy Hang, 2017; Ho Thi Van Anh, 2018), there are only a few articles on the relationship between social responsibility and the risk of corporate financial distress (Tran Trieu Anh Khoa, 2022)

In addition, in Vietnam, manufacturing has long been one of the important sectors and a sustainable driving force in economic development This industry is also

an industry with direct impacts on the environment Manufacturing factories bring an increased risk of environmental pollution, which has long been a sore problem in society To facilitate the study data, the author focuses on the group of manufacturing

in plastic and chemical production industries listed on the Vietnam stock market

Given the importance of studying the risk of corporate financial distress, as well

as the novelty of implementing social responsibility, the author selected the topic to

focus on "The impact of implementing social responsibilities on the risk of financial distress for enterprises in the plastic and chemical production industry listed in the stock market ".

2 Research objectives

The overall objective of the research project is to assess the impact of social

responsibility implementation on the risk of financial distress of enterprises in the plastics and chemicals industry listed on the Vietnam stock market

Specific tasks:

- An overview of the theoretical foundations of social responsibility and the risk

of financial distress, and the theoretical implications of the relationship between CSR and FDR

- Clarify the situation of plastic–chemical enterprises implementing social responsibility in Vietnam

- Apply some econometric models to analyze and assess the impact of social responsibility factors on the risk of financial distress of plastic–chemical manufacturing enterprises listed on the Vietnam stock market

- From the research results, propose some recommendations and policies to improve and overcome the limitations of implementing social responsibility to minimize the risk of corporate financial distress

3 Subjects and scope of the research

Subjects of the research include social responsibility and the risk of financial

distress Corporate social responsibility is measured by content analysis based on 4 aspects: environment, employees, products, and community (Ho Thi Van Anh, 2017); The risk of financial distress is measured by the following indicators: Z_score (Altman, 1968)

The scope of the research includes data collected from 50 plastic-chemical

enterprises listed on the Vietnam stock market in the period from 2019 to 2023 (VietstockFinance, 2024) Non-financial data on corporate social responsibility are collected through sustainability reports and corporate annual reports (Ho Thi Van Anh, 2017)

4 Research methodology

Qualitative method: analyze sustainable development reports and annual reports

of enterprises to select appropriate contents, thereby encoding CSR calculation information based on 4 criteria: environment, employees, products, and community (Ho Thi Van Anh, 2017), thereby analyzing the current status of social responsibility of enterprises in the plastic – chemical industry and making appropriate recommendations

Quantitative methods: The thesis uses statistic software Stata 17 to perform

linear regression model analysis techniques with the methods of estimating ordinary least squares – OLS, random effect model – REM, and fixed effect model – FEM to examine the correlation between social responsibility and risk of financial distress, then inspect defects and perform defect correction of the model

5 Research contributions

To provide research findings on the impact of social responsibility implementation on the risk of corporate financial distress, the thesis focuses on

answering the following research question: "Does a relationship exist between social

responsibility and the risk of corporate financial distress?" In addition, the thesis has

the following contributions:

In theory, summary a brief synthesis condenses the theories of corporate social

responsibility, and the risk of financial distress, thereby giving the impact of social responsibility implementation on the risk of corporate financial distress, contributing to additional scientific arguments explaining the impact of CSR on FDR

In practice, the thesis provides comments and assessments on the current status

of the social responsibility of enterprises in the plastic–chemical industry Besides, the important role of CSR in corporate governance today is an undeniable issue CSR in the thesis is considered in terms of environment, labor, products, and communities This result helps business executives and the Government to see more objectively the role of enterprises in the economy, towards balancing the interests of stakeholders will become the prerequisite goal of enterprises and thereby contribute more value to society

6 Research Structure

Chapter 1: Overview of the impact of social responsibility on the risk of financial distress

Chapter 2: Databases and Research Methods

Chapter 3: Empirical Research Results

Chapter 4: Conclusions and Recommendations

Chapter 1: Overview of the impact of CSR implementation on the risk of

corporate financial distress 1.1 Overview of corporate social responsibility

1.1.1 Corporate social responsibility (CSR) concept

The term corporate social responsibility officially appeared when H.R Bowen (1953) published his book "Social Responsibilities of the Businessmen" aimed at propaganda and urging property managers not to harm the rights and interests of others, appealing to charity to reimburse businesses for damages caused by businesses harming society Since then, many researchers have offered different views, such as, Keith Davis (1973) argues that "Corporate social responsibility is the concern and response of the business to problems that go beyond satisfying legal, economic and technological requirements" Archie Carroll (1999) offers a broader concept, stating that "Corporate social responsibility is all the economic, legal, ethical and other areas that society expects of a business at any given time." Matten and Moon (2004) argue that "Corporate Social Responsibility is a cluster concept, encompassing many different concepts, such

as business ethics, corporate as charity, corporate citizenship, sustainability, and environmental responsibility It is a dynamic concept and is always challenged in each specific economic, political, and social context." Today, the issue of corporate social responsibility is increasingly researched by many people and has many different conceptions

Following Mohr et al (2001), Social responsibilities are corporate efforts to minimize or avoid harmful effects and maximize a long-term positive and useful impact

on society Some of these same concepts are introduced as those of Maignan and Ferrell

(2004), who believe that a business is socially responsible when its decisions and

activities are aimed at creating and balancing the different interests of the individuals and organizations involved Group Private Economic Development of the World Bank used to analyze the same concept in 2003, according to which, CSR is "the commitment

of enterprises to contribute to sustainable economic development, through compliance with standards on environmental protection, gender equality, occupational safety, labor rights, fair pay, etc staff training and development, community development, in a way

a branch of research on the concept of social responsibility argues that CSR not only affects the interests of internal factors such as shareholders and creditors but also cares, benefits, or minimizes harm to external factors such as customers, communities, and social organizations

Until now, when social responsibility has become more and more important and attracted a lot of attention from businesses and stakeholders, many definitions of this term have been researched and given, but there is no consensus Following Sheehy and Benedict (2015), social responsibility is defined as an activity of "self-regulation in business by international private enterprises" They studied a variety of approaches to come up with the definition of CSR, and from there discovered two main reasons First, different perspectives can offer different CSR insights and practices For example, an entrepreneur can consider it as a business strategy, enhancing the value image of the business An NGO, on the other hand, understands that implementing CSR is an act of misleading consumers about the environment, or greenwash A government official will see this as voluntary corporate action, working in the public interest In addition, the second reason mentioned is that, disagreement over definitions may arise from different legal environments For example, while an economist may consider a director's decision

to implement CSR policies rational as to minimize the risk of agency costs, a law scholar may consider it an informed decision of what the law requires from the director

In the present period, the concept of social responsibility of Carroll (1979) stated

"Corporate social responsibility includes socially economic, legal, ethical and voluntary expectations of organizations at a given time" which is considered by many researchers

to be highly inclusive and used as a research model Hopkins (2003) similarly "Social responsibility is concerned with behaving ethically with the stakeholders of a business, these stakeholders exist inside and outside the business and the goal of social responsibility is to improve the quality of life of its stakeholders while maintaining the profitability of the business." This definition raises two issues that need to be clarified:

"ethics" and "stakeholders" An ethical behavior depends on the perspective of the person evaluating that behavior and is difficult to determine accurately Who stakeholders include causes a lot of debate but can list a few subjects such as: Inside the business - Board of Directors, shareholders and employees; Outside the business –

Suppliers, customers, environment, Government and community Thus, the concept of CSR proposed by Hopkins (2003) shows coverage of issues of interest of the parties, both inside and outside the business, and the thesis agrees with this definition

Carroll's CSR pyramid model (1991)

Carroll (1979) evaluates each substantive aspect of the concept of social responsibility and proposes an overarching definition that lists the responsibilities that

a business is obliged to meet as required by its stakeholders Carroll (1991) identifies four important substantive aspects that form the foundation of corporate social responsibility and become one of the most widely used basic theoretical frameworks shown in Figure 1.1: Philanthropic responsibilities, Ethical responsibilities, Legal responsibilities and Economic responsibilities

The pyramid is built on the foundation of economic responsibility, which is considered as the first concern of businesses for sustainable growth and competitive advantage It is the primary responsibility of the business to achieve profitability from its business operations and maintain it in the long term But at the same time, the business activities of the enterprise must be operated in accordance with the framework and regulations of the law, the issue is considered as the liability of the enterprise (Carroll, 1991; Park, 2019) Ethical responsibility is different from the above two aspects because ethical issues are not completely enforced by law Ethical responsibility reflects society's expectations for businesses to balance the interests of stakeholders such as employees, customers, shareholders, and the community Charity responsibility

is the process of realizing the ethical responsibility of enterprises through actively participating in social welfare programs and charity activities However, there is no mandatory link between volunteer responsibility and ethical responsibility, a business may not carry out charitable activities but still ensure ethical responsibilities that reflect social expectations such as caring for consumers' health through the production of high-quality products, environmental protection through the construction of production processes using green fuels Philanthropy, although widely known as a form of CSR promotion, is only the tip of the problem This is also one of the reasons that motivates

the thesis to consider CSR assessment from a broader perspective instead of just considering CSR measurement through annual welfare and charity expenditure metrics

Figure 1.1 Carroll's CSR Pyramid (1991)

(Source: CafeBiz)

1.1.2 Measurement of corporate social responsibility

In the past, CSR was measured mainly based on the cost of charitable activities

of the business used to donate to a specific social welfare project However, in the current trend, with the emergence of many links between businesses and social issues; complex relationships and cross-interests between stakeholders make it necessary to have a complex tool for measuring CSR This has led to the emergence of initiatives such as social accounting, sustainability reporting, performance indicators, and social and environmental standards (Escrig-Olmedo et al., 2014; Rahdari &; Rostamy, 2015; Jankalová, 2016), similar to the ESG-Environmental, Social & Corporate Governance rating, a set of standards that measure the impact of businesses on the community published by rating agencies The above ranking indicators form an effective measurement tool and directly report the contributions of enterprises to sustainable development to stakeholders (Pope et al., 2004) Sustainability reports and information published on corporate websites are a concrete demonstration of disclosure to stakeholders However, despite this significant development, CSR measurement and evaluation are constantly subject to continuous improvement and updating with new variables (Elkington & Rowlands, 1999)

Currently, a variety of different frameworks have been proposed to measure social responsibility BSCI stands for Business Social Compliance Initiative – A set of

standards for assessing social compliance in business was born in 2003 from the proposal of the Foreign Trade Association (FTA) This set of standards includes 9 important contents, including issues related to Compliance with relevant laws; freedom

of association and the right to collective bargaining; prohibition of discrimination; remuneration of labor; working hours; workplace safety; prohibition of child labor;

indicators widely applied in businesses around the world include the Dow Jones Sustainable Development Indicators (1999), the GRI Sustainable Development Report (2002), and CSR (1960) The common point of these 3 indicators is that they revolve around 3 aspects of sustainable development: economy, environment, and society, assessing the impact of businesses on each different aspect

The increase in CSR rating agencies indicates an increase in demand for the services of these rating agencies (Escrig-Olmedo et al., 2019) However, standardization remains a challenge and there is no unified tool that can assess corporate social responsibility (Callado và Fensterseifer, 2011) Different sets of measurements will generally have similarities in the indicators, but the way to evaluate those criteria in each set of indicators is different, leading to a business assessing social responsibility with different sets of measurements producing different results

In Vietnam, the disclosure of information on CSR is mandatory for listed enterprises under the provisions of Circular No 155/2015/TT-BTC and officially took effect from 01/01/2016 This is considered an important step for Vietnam towards a sustainable financial market and a factor attracting the attention of international investors According to the provisions of Clause 2, Article 8, Chapter II of Circular No 155/2015/TT-BTC, enterprises must make environmental and social impact reports of the company, contents related to sustainable development including management of raw materials, energy consumption, water consumption, comply with laws on environmental protection, policies related to workers, reports related to responsibility

to local communities, reports related to the green capital market, information related to sustainable development With limited information channels in the current situation, to

be able to effectively measure the CSR of enterprises in the context of Vietnam is a

The thesis uses the approach of measuring CSR through criteria related to sustainable development content published by enterprises based on sustainable development reports, and annual reports This measurement method builds a CSR index based on calculating 19 points of criteria to measure component CSR contents including environmental responsibility, responsibility to employees, responsibility to the community, and responsibility for products (Gray et al., 1995b, 1995a); (Ho Thi Van Anh, 2017) and (Nguyen & Nguyen, 2021) This is considered the most feasible method applied to the research context in Vietnam and the method of implementation is detailed

in chapter 2

1.1.3 Benefits of CSR implementation of enterprises

Firstly, to implement corporate social responsibility today in the world, there are more than 1000 codes of conduct showing corporate social responsibility such as BSCI (Business Social Compliance Initiative, 2003), SA8000 (Labor Standards in Manufacturing Factories), WRAP (Worldwide Responsible Accredited Production), FSC (Forest Stewardship Council), ISO14001 (enterprise environmental management system), ISO26000 (CSR standard of the International Organization for Standardization) This is both a driving force and a requirement and pressure that requires us to have comprehensive, timely and rapid innovation in accordance with regulations of organizations, as well as international practices to be proactive in the integration process Reforms in macro management, as well as in corporate management, will contribute to making it easier to apply and implement social responsibility regulations and other international norms On the other hand, in many new-generation free trade agreements that Vietnam has joined, there are mentions and clear standards on corporate social responsibility practices Therefore, integrating the implementation of social responsibility into business activities from the beginning will help Vietnamese enterprises proactively meet the requirements of responsible business

of foreign partners, thereby helping them more conveniently integrate into the world market

Second, implementing social responsibility is a popular trend in the world and has become a soft requirement for businesses Enterprises interested in implementing social responsibility will have the opportunity to receive financial, technical, and

technological support as well as valuable experiences in the process of applying business standards to businesses from state management agencies, organizations, domestic and foreign associations, investors, and even their customers Accordingly, corporate social responsibility enables organizations to develop and provide resources efficiently (Petrick, J and Quinn, J, 2001) Along with that, when enterprises aim for sustainable development by attaching importance to harmonizing economic benefits and responsibility for the environment and community, it will create trust in society and consumers for enterprises and their products Since then, the brand and reputation of enterprises will be enhanced, the market for products will be more sustainable and improve the competitiveness of enterprises in the market (Porter, M.E., and Kramer, M.R, 2006)

Third, focusing on environmental protection - an important pillar of social responsibility will help enterprises efficiently exploit resources, and use energy rationally, towards clean and renewable energy sources This helps enterprises improve the efficiency of inputs, thereby optimizing costs and limiting systemic factors of environmental protection and many other social issues affecting enterprises

Finally, CSR strategy also has an impact on improving the loyalty and retention

of employees within the organization, thereby helping businesses maintain human resources and maintain sustainable business efficiency (Nguyen Hong Thu, 2021) The majority of employees love their jobs due to good working conditions and reasonable compensation Businesses that meet these requirements also mean creating a team that

is engaged, loves work, is proud of the company image, and is determined to work for the common benefit of the "big family" The benefits achieved here are clear, in addition

to the noticeably increased productivity, there is also a cohesive culture at the business

A strong culture has a positive impact not only on the business itself but also spreads very well in the business community This is what every business wants to build Not only that, the cost and energy plus the loss of morale due to the need to constantly search and train new personnel (in case the old personnel quit due to the company's unreasonable human resources policy) are eliminated Good remuneration policies, a good culture, and a good working environment form a resonant effect that will "lure"

1.2 Overview of the risk of financial distress

1.2.1 The concept of financial distress risk

Financial distress is a rather obscure term that can be attributed to four terms that describe the financial condition of a business: failure, insolvency, bankruptcy, and default (Altman & Hotchkiss, 2010) The above four terms are used to express the financial distress of an enterprise based on the theoretical framework of the cash flow model and asset liquidation Beaver (1966) describes a business as a "reservoir" formed

by cash inflows and outflows; a business in financial trouble is like a reservoir drained

In countries where economies have a deep government intervention such as China and Vietnam, financial distress is usually determined based on a certain degree

of deterioration of financial capacity dictated by stock market regulators For example, some listed companies are placed under special control by the China Stock Exchange for negative after-tax profit for two consecutive years or net asset value per share below the par value of shares (Sun & Hui, 2006; Ding et al., 2008; Sun, Jia, et al., 2011) Also, Sun, He, et al (2011) propose the concept of relative financial distress, which is the deterioration of the financial condition at one point of the enterprise that occurs during the life cycle of the enterprise itself

In summary, the definition of financial distress has many different perspectives and is used depending on the research goals of the researchers From the perspective of theoretical analysis, financial distress comes in varying degrees, mild conditions can be caused by temporary cash flow difficulties while severe conditions can be caused by business failures and having to declare bankruptcy A business facing the risk of financial distress will undergo a transition between the two states mentioned above and this process takes place continuously with the cause of long-term instability of business operations From the perspective of empirical research, to clarify the criteria for selecting research samples in the context of limited availability of data, studies often consider individual criteria for determining financial distress such as statutory bankruptcy or stock market delisting rather than below levels And in fact, identifying

a business in financial distress is debatable Based on relevant research strategies, the thesis found that the signs that help make judgments about the financial distress of a business are largely based on financial information collected from the financial statements system of the enterprise and from which a variety of indicators measuring the risk of financial distress are established, details are mentioned in the next content

1.2.2 Measuring the risk of financial distress

Risk of financial distress – FDR is initially measured and forecasted primarily based on data from financial statements, specifically financial indicators Beaver (1966) was the first study to detail 30 financial indicators, classified into 6 groups of indicators based on univariate analysis, and concluded that these 6 groups of indicators played an important role in building FDR measurement tools Altman (1968) improvements were made through the use of multifactor differential analysis – MDA identified a smaller group of indicators and formulated the Z_score index, the first and most widely used measure of financial distress risk Beaver and Altman's studies both relied on financial metrics in financial statements to measure FDR However, the above method has a few limitations, Beaver et al (2011) believe the historical element of financial data does not directly provide tools to measure expectations as well as changes in net assets arising from production and business activities In addition, the act of defaulting on debts or declaring bankruptcy of enterprises often depends on timely decisions

In order to overcome the limitations of purely data-driven measurement tools on financial statements, researchers have developed FDR measurement and forecasting tools based on market information This approach was initiated by option pricing theory (Black & Scholes, 1973) with Merton's model (1974) being pioneering research Accordingly, the share capital of the enterprise is valued as a European-style call option based on the value of the assets of the business Although measurement tools use market data such as distance-to-default (Merton, 1974), BSM_Prob (Hillegeist et al., 2004), and CHS (Campbell et al., 2008) show the level of detail in FDR measurement, these measurement tools are rarely used because of their complexity FDR measurement tools based on financial information remain indispensable and continue to be widely used as the Z_score index (Altman, 1968), the O_score index (Ohlson, 1980), ch <unk> số Zm_score (Zmijewski, 1984) and simpler measurement tools such as negative working capital, negative operating cash flows, and interest payment ratios used in the study (Mario Hernandez Tinoco, 2013)

Taken together, the combined use of financial data and market information to measure FDR is gaining widespread acceptance because of the effectiveness of these combinations and is gradually replacing purely FDR measurement tools based on accounting information However, in terms of market context, the use of FDR measurement tools that combine market information and accounting data is common in developed countries, where stock markets are effectively managed and information asymmetry problems are limited At that time, market data will show the correct financial state that businesses are facing In other words, in countries where market information does not accurately and promptly reflect the financial problems of enterprises, namely Vietnam, FDR measurement tools using information from financial statements bring higher reliability This is why the thesis uses the FDR measurement variable of the Z_score index (Altman, 1968)

1.3 Impact of social responsibility on the risk of corporate financial distress 1.3.1 Theoretical basis of the impact of social responsibility on the risk of corporate financial distress

(1) Resource dependence theory

Resource dependence theory (Pfeffer and Salancik, 1978) focuses on the ability

of enterprises to have relevant resources According to this approach, a business is not self-sufficient and needs external resources to develop To have the necessary resources, enterprises often have to mobilize from outside based on formal as well as informal cooperation agreements with other enterprises to ensure a stable level of quantity and quality of necessary resources However, this reduces the degree of autonomy of the enterprise, in other words, increases the level of dependence of the enterprise on related enterprises The essence of this dependence is the relationship of mutual dependence between enterprises in the process of cooperation and exchange of resources

Businesses engage in CSR because they assume that some kind of competitive advantage accrues to them A resource-based perspective is helpful to understand why businesses engage in CSR activities and disclosure From a resource-based perspective, CSR is considered to provide internal or external benefits or both Investing in socially responsible practices can benefit internally by helping businesses develop new resources and competencies related to know-how and corporate culture Investing in CSR activities and disclosure brings important results toward the creation or depletion

of basic intangible resources, namely those related to workers The external benefits of CSR are related to its influence on a business's reputation Enterprise reputation can be understood as a fundamental intangible resource that can be created or exhausted as a consequence of decisions to participate or not to participate in CSR activities Businesses with a good reputation for social responsibility can improve relations with external actors They can also attract better employees or increase the motivation, morale, commitment, and loyalty of current employees to the business Thus, the implementation of CSR can be considered strategically valuable to businesses and can reduce the financial risk of businesses

to maintain their legitimacy According to this theory, CSR can be used by enterprises

as a tool to communicate information about their activities and activities (practices) in order to meet society's expectations in order to maintain a license to operate in society (legality)

Legitimate theory asserts that, for a company to continue to operate successfully,

it must act within boundaries and norms that society defines as socially responsible behavior (O'donovan, 2002) Deegan and Unerman (2011) define legitimacy theory as the "social contract" between an organization and the society in which it operates In such an environment, companies try to legitimize their actions by engaging in CSR reports, for social approval (Omran & Ramdhony, 2015) The theory of institutions laid the foundations of lawfulness theory because it considered many organizational activities as drivers of legitimate-seeking behaviors, and thus influenced by social norms

Gary Odonovan (2006) states that the majority of current research points to why companies publish environmental information in annual reports due to legitimate theory, which is one of the explanations for the increase in environmental disclosure, since the early 1980s Formal theory is based on the idea that, in order to continue to operate successfully, companies must act within the sphere of society that is aware of socially acceptable behaviors

According to Deegan (2002), the theory of legitimacy is based on the view that the rights and responsibilities of the organization must come from society Business organizations must operate within the boundaries of society to meet societal expectations, including the provision of better goods and services to society Because

organizations are part of a broader social system, organizations need to function within the social system, without any negative impact on society This can make the organization achieve goals and stable profitability

Guthrie and Parker (1989), O'Donovan (2002) have argued: the legitimate theory

is based on the view that organizations are managed by society through a social contract that managers have agreed to obtain, based on a number of social requirements, compensate for the goals of the organization itself Organizations need to behave and disclose enough information to society in order for society to judge whether it is a good business Companies are recognized as good businesses when they operate according

to their commitments to society In general, legitimate theory indicates that the fulfillment of social responsibility is a corporate incentive to be recognized in society thereby reducing the risk of financial distress

(3) Stakeholder theory

Stakeholder theory explains the relationship between company operations and stakeholders formulated by author Friedman in the 1970s According to this theory, the enterprise is considered a subject in a large collective with many components The authors have said that the company operates not only for the goal of maximizing profits for shareholders but also to pay attention and consider the parties involved in the operation of the business Stakeholders of the business (Freeman, 1984), internally speaking, include shareholders, employees, board of directors, management, In terms

of external aspects, it can be mentioned customers, suppliers, society, community, media, Government, other important organizations,

Figure 1.2: Stakeholders according to Freeman (1984)

The similarity between stakeholder theory and CSR is that they both emphasize incorporating the benefits of society into the business goals of the business Stakeholder theory holds that the essence of business lies in building relationships and creating value for parties All of these stakeholders are of equal importance to the business and any benefit trade-offs between the parties should be avoided Instead, management should find ways that these interests can be directed toward the same goal, an issue that requires good governance skills Altman & Hotchkiss (2010) argues that one of the reasons businesses face FDR is due to poor management skills Attig et al (2013) said that businesses that focus on CSR often have high credit ratings A result that helps increase the sustainability of production and business activities of enterprises This is also a sign

of the good management capacity of the management board through the efficient use of resources and the reduction of costs incurred due to irresponsible acts towards society Credit rating agencies positively rate CSR activities for sustainable improvements in production and business activities and help reduce FDR (Attig &; ctg, 2013) Furthermore, the disclosure of information on CSR activities helps raise awareness of ethical compliance and risk management, thereby providing information that helps predict the possibility of corporate cash flow growth in the long term

(4) Representation theory

Representative issue (Jensen and Meckling, 1976; Fama and Jensen, 1983) arose

as a result of the enforcement of contracts between representatives with conflicting interests Representation costs include the costs of structuring and monitoring contracts between these representatives, plus losses incurred as a result of full execution costs that exceed their benefits In this sense, the survival of a business will depend on the benefits of risk sharing, the outcome of management, the outcome of contractual payments, and the cost of separation between management and ownership

Representation theory focuses on business relationships, in which one party (owner) delegates work to another party (representative), who then performs work on behalf of the owners (Eisenhardt, 1989) Most of the contractual issues faced by businesses involve issues of representation (moral hazard and inverse choice) and risk

sharing, because principals and representations have different objectives and levels of risk tolerance

Representation theory holds that conflicts arise when there is incomplete and asymmetric information between shareholders and representatives in the company Both parties have different interests and this problem is minimized by using appropriate mechanisms that can limit the divergence of interests between shareholders and company managers, by establishing appropriate remuneration mechanisms for managers, and establish an effective monitoring mechanism to limit abnormal and self-interested behaviors of company managers

Therefore, CSR disclosure is an important tool in the context of contracts between shareholders and managers, as well as between businesses and creditors Shareholders bear the cost of oversight to enhance the information they need to know about the performance of managers As such, managers or agents will attempt to use published accounting information to protect their own interests, and demonstrate to shareholders that management is effective (Watts & Zimmerman, 1978)

1.3.2 Empirical studies on the impact of social responsibility on the risk of financial distress

(1) Domestic Research

Currently, there are not many studies on social responsibility published in Vietnam, most of these studies mainly focus on the theory of CSR as well as the theoretical basis explaining the disclosure behavior of enterprises The level of information disclosure on CSR in Vietnam is said to be low, as shown by studies by Le Ngoc My Hang (2015), Kelly Anh Vu et al (2017), Ta Thi Thu Hang (2020) Researching on factors affecting CSR information disclosure, Pham Duc Hieu (2012) sent a survey to business leaders and consumers and the results showed that business leaders did not have a high awareness of CSR implementation Kelly Anh Vu and colleagues (2017) researched 200 listed enterprises in 2013 and found that the capital ownership ratio of the state and managers at enterprises had the opposite effect on the announcement of CSR The commitment of many Vietnamese companies in the country

to CSR is still spontaneous and formal, (Nguyen et al., 2018) Because they do not

understand the benefits and opportunities that CSR can bring to their business, these businesses often focus on the goal of maximizing profits instead of caring about social responsibility (Thanh &; Podruzsik, 2018)

In addition, a research branch on this topic in Vietnam is on the impact of CSR implementation on corporate financial performance Ho Viet Tien and Ho Thi Van Anh (2017) studied listed enterprises in the period 2012-2016 and found that disclosure of information on community activities, product responsibility, and environmental responsibility had a positive impact on ROA and Tobin'Q of enterprises Nguyen Bich Ngoc et al (2015) and Ho Thi Van Anh (2018) did not find a relationship between CSR and Tobin'Q while Kabir and Hanh Minh Thai (2017), Ta Thi Thuy Hang (2020) when researching listed enterprises, said that disclosing information about CSR increases ROA and Tobin'Q of enterprises Cuong Nguyen and Lan Nguyen (2021) studied 27 listed enterprises in the period of 2015-2019 and showed that the results of the disclosure of information on CSR increased the efficient finances of the enterprise Nguyen Thi Bich Ngoc (2015) based on data from the annual report of 50 companies listed on the Vietnam stock exchange for the period 2010-2013 and found that disclosure

of social responsibility information has a positive impact on the value of enterprises In particular, only information about the environment has a positive impact, information about employees has a negative impact on enterprise values

Regarding the relationship between CSR and the risk of corporate financial distress, this topic has not really been paid attention and there are many published articles, so the research results are still gaps and not consistent According to Nguyen and Nguyen (2015), investors can assign a higher level of risk to companies with higher CSR indexes, as CSR-focused companies oriented towards too many different stakeholders may be more vulnerable to economic shocks In other words, focusing on stakeholders can increase your risk level Another research result of Nguyen & Nguyen (2021) on banks in the period 2008-2017 shows that CSR activities reduce banks' risk tolerance, and this relationship is only available in cases where banks are financially constrained In contrast, the research paper of Tran Trieu Anh Khoa (2023) points to the opposite relationship, studying 294 listed non-financial enterprises between 2016 and

2022 shows that the implementation of social responsibility has an impact on reducing

the risk of financial distress Supporting this result is the research paper of Le Thi Phuong Uyen and Nguyen Thanh Dat (2023), which tracked 2145 companies in the US from 2002 to 2021, said that socially responsible companies are often more transparent

in disclosing information, so that asymmetric information is minimized and risks of businesses are reduced In addition, Nguyen Thi Hoa Hong's research paper (2022) with

780 listed enterprises in Vietnam in the period 2010-2021 also showed similar results, showing that businesses with effective CSR programs through high CSRD scores will reduce risks in businesses

In general, CSR is still a new topic in Vietnam, so research articles on the impact

of CSR on the risk of corporate financial distress have not been much and have not been focused Most of the results of previous studies indicate that CSR has an inverse relationship with the risk of corporate financial distress, but some research results still exist that indicate a synergistic effect between CSR and FDR

(2) Foreign studies

Researchers and businesses are increasingly showing a particular interest in financial information, especially information about CSR Businesses have recognized this trend and integrated CSR programs into their business operations, along with the publication of annual reports on their social activities The disclosure of this information

non-is seen as an effective way to help reduce rnon-isk (Klein and Dawar, 2004) The overall rnon-isk faced by the business, which is a consequence of internal and external factors, affects profitability (Jo and Na, 2012) In today's unpredictable and potentially risky global business environment, every business is interested in how they can minimize business risks Therefore, if CSR disclosure is considered useful, it can become an important part

of your risk management strategy

Based on empirical studies, the thesis explains the correlation between CSR and

FDR activities by two main mechanisms First, CSR can reduce enterprise risk and

thereby invoke an inverse correlation with FDR Jo & Na (2012) provides evidence

showing an inverse correlation between CSR and enterprise risk, reinforcing the hypothesis of risk mitigation Lee & Faff (2009) argues that businesses implementing CSR have lower specific risks due to better market portfolio efficiency Albuquerque et

al (2019) show that effective implementation of CSR helps reduce systemic risk and increase enterprise value Kim et al (2014) said that CSR companies often have a transparent financial reporting system and are less affected by negative information, thereby contributing to minimizing the risk of stocks falling Mishra & Modi (2013) provide evidence that CSR helps mitigate business risk Synthesis from the above empirical research results shows that businesses can reduce risks through effective implementation of CSR

Some studies provide results based on empirical research that being responsible

to stakeholders reduces the unique risks of enterprises (Boutin Dufresne and Savaria, 2004; Sharfman and Fernando, 2008; Bassen, Meyer and Schlange, 2006; Vanhamme and Grobben, 2009) Environmental, social, and community responsibility can help businesses create a positive reputation and ethical capital with their stakeholders (Godfrey, 2005; Godfrey, Merrill, and Hansen, 2009), ensuring that these businesses are less vulnerable in the event of a community-related crisis (Peloza, 2006) For example, businesses that implement CSR are likely to invest in equipment that enables safer products and protects the environment, with the goal of minimizing litigation In the context of community crisis, enterprises with CSR policies can more easily rebuild their social image than those without such policies (Luo and Bhattacharya, 2006)

Furthermore, the implementation of CSR encourages the maintenance of term stable relationships with local communities and governments, which helps avoid the risk of litigation from local communities and increased government oversight (McGuire, Sundgren, and Schneeweis, 1988) The implementation of CSR benefits stakeholders, such as employees, lenders and suppliers (Waddock and Graves, 1997), and strengthens the relationship between them and the business (Fombrun and Shanley, 1990), thus improving the sustainability of the business (Lengnick-Hall, 1996; Whitehouse, 2006) Accordingly, CSR is used to improve the business environment and minimize risks of enterprises

long-Some of these previous studies (Armstrong et al., 2011; Dhaliwal et al., 2012; Goss and Roberts, 2011; Raimo et al., 2020; Suto and Takehara, 2017) found a positive association between corporate environmental and social disclosure and equity and debt capital CPSD From a theoretical perspective, corporate strategy that fully considers the

non-financial aspects of business operations as well as conflicts between stakeholders can reduce business risks and minimize information asymmetries between lenders and investors in financial markets (Lopatta et al., 2016) Thus, high corporate social efficiency can reduce the cost of representation that businesses incur when seeking funding sources In fact, market perceptions of corporate social efficiency can motivate businesses to publish non-financial information (Healy and Palepu, 2001) In addition

to market awareness, the purpose of protecting stakeholders also contributes to active disclosure of sustainable development information (Martínez‐Ferrero et al., 2016; Raimo et al., 2020) Salama et al (2011) looked at the relationship between a firm's environmental performance and its risk in the UK context from 1994 to 2006, and found that an enterprise's environmental performance was inversely related to its systematic financial risk

Second, CSR enhances the image of the business and improves access to capital attraction channels that help minimize FDR Sharfman &; Fernando (2008) and El

Ghoul et al (2011) provide evidence that the higher a business has a CSR, the lower its cost of capital because of perceptions that its risk is low Using credit grant data in the

US, Goss & Roberts (2011) suggested that enterprises implementing CSR enjoy lower credit interest rates than other businesses Attig et al (2013) points out that rating agencies often value businesses that implement CSR These organizations consider CSR information as non-financial information in the process of implementing corporate credit rating Jiraporn et al (2014) provide evidence that increasing one standard deviation in the Social Responsibility index results in a 4.5% increase in credit ratings and thereby reduces the risk of corporate default Summarizing from the above empirical studies, it can be seen that enterprises participating in CSR implementation are rated with high credit ratings and thereby easily access funding channels in the financial market

However, the research results on the criteria for assessing the composition of the CSR index are heterogeneous and do not have the same impact on enterprise risk The links between CSR component assets and financial metrics also differ El Ghoul &; ctg (2011) and Cai et al (2016) argue that human rights liability assessments do not

evaluation criteria, including community, diversity, workers, environment and products, showed a positive impact on credit ratings, while human rights showed opposite effects but not statistically significant Verwijmeren & Derwall (2010) argue that employee satisfaction has the effect of reducing the risk of bankruptcy through reducing financial leverage and improving a firm's credit rating Research results on the impact of CSR components are different, indicating the need for additional studies to perform impact assessments of each CSR content on FDR

1.4 Research gaps

Issues related to social responsibility are one of the urgent issues that have received attention in recent years in Vietnam, so the number of research papers related

to this issue is still small and there are still many research gaps in this field

First, the heterogeneity in corporate sustainability policies has created a number

of systemic problems and caused difficulties in CSR assessment Although CSR has similar qualitative and quantitative measurement criteria, the effects obtained from CSR implementation in enterprises are not the same (Chatterji et al., 2016;) In addition, businesses can also take advantage of the lack of standardization in CSR measurement

to try to facilitate and raise CSR scores to increase brand value and beautify the image

of the business Thus, the absence of a formal system will affect the results of CSR assessment among enterprises, causing the ability to inaccurately reflect the implementation of social responsibility between enterprises

Second, the group of factors assessing the impact of financial information on FDR has always been a pioneer and has had a guiding influence Important foundational studies include Beaver et al (2011);; Altman (2000); Altman et al (2017) provides important evidence showing the role of financial information in FDR forecasting FDR forecasting models are constantly being developed, updated with additional variables to increase forecasting efficiency, specifically adding more market information of enterprises: market capitalization, stock price fluctuations (Shumway, 2001; Bharath

& Shumway, 2008), (Campbell et al., 2008; Campbell et al., 2011) and the impacts of the macroeconomic environment such as interest rates, inflation (Tinoco & Wilson, 2013) However, the use of non-financial data in the FDR research model is new and

mostly focuses on corporate governance and board structure (Elloumi & Gueyié, 2001;; Deng & Wang, 2006; Fich & Slezak, 2008), there has not been much research on the relationship between social responsibility and corporate financial risk

1.5 Research framework proposal

1.5.2 Research framework

In this study, the thesis attempts to determine how the transparency of CSR information is related to the risk of corporate financial distress, whether the level of disclosure has a different impact on a company's risk of financial distress The author uses a sample with 50 enterprises in the group of plastics and chemicals production listed on the Vietnam stock market This is one of the most influential business groups

on the environment, so the policies and decisions of these businesses will have a significant impact on society

To be able to assess the impact of CSR on the risk of financial distress of enterprises, the research paper considers based on the strategic vision of the management, the responsibility of the business in 4 aspects: environment, labors, community and products In addition, to measure the risk of corporate financial distress,

many financial indicators of the enterprise such as working capital, total assets, liabilities, revenue,

Figure 1.3: Impact study framework of CSR implementation on the risk of

corporate financial distress

(Source: Author constructed)

This study is divided into 4 main parts Following the overview is the database and research methodology section (part 2) Part 3 describes the research results through the analysis of the experimental model, research data and verification results Finally, conclude and propose solutions to help businesses in Vietnam in implementing CSR effectively

Financial Distress Risk (FDR)

Corporate Social Responsibilities (non financial

Chapter 2: Databases and Research Methods

To achieve research goals, research methodology plays an important role From the results of a research overview on the relationship between social responsibility implementation and the risk of corporate financial distress, this chapter focuses on introducing the research model, usage variables, and data processing methods in the model The analytical framework and research hypothesis are the antecedents of the quantitative analyses used in this thesis

2.1 Databases

When conducting research on the impact of CSR on the risk of corporate financial distress in the Vietnamese market, the research paper selected enterprises in the plastic-chemical industry The purpose of the paper is to assess the impact of CSR

on companies with a high level of environmental impact According to the author, companies with a high level of environmental impact will have to take responsibility as well as take more actions and invest in the environment to minimize their impacts, which will be fully reported in the company's annual report In addition, to be able to ensure research data, companies must have full financial data in their financial statements for the period 2019-2023 Moreover, the information about CSR will be collected by the author in the ESG report, annual report and media to calculate the score

The research sample is 50 enterprises in the plastic – chemical manufacturing industry listed on the Vietnam stock market from 2019 to 2023, the author has eliminated enterprises that have not posted information about the annual report in 2023 and selected enterprises with full information instead

2.2 Research variable description

2.2.1 Financial distress risk - dependent variable

Empirical studies suggest two approaches to measuring FDR The first approach

is based on accounting data used in studies by Altman et al (2017); and Tykvová &; Borell (2012); the second approach is based on a combination of market data and corporate accounting data used in studies by Shumway (2001); Bharath &; Shumway (2008) The combination of accounting and market data in FDR measurement will

evaluating the effectiveness of FDR measurement include Agarwal & Taffler (2008), Das et al (2009) and Bauer & Agarwal (2014) evaluated the effectiveness of FDR forecasting models based on accounting data, market data and risk-hazard models Das

et al (2009) argue that FDR forecast accounting data is as effective as market data, and that the two data groups complement each other in measuring FDR Bauer & Agarwal (2014) argue that the combination of accounting information and market information results in higher FDR measurement efficiency (Shumway, 2001; Campbell et al., 2008) However, market data only plays its role when the stock market is strictly regulated and monitored Although Vietnam's economy in the current period has made great changes

in management, there are still negative problems related to the quality of information in the market such as stock price manipulation, and insider trading Therefore, the pure FDR measurement method using accounting data somewhat limits the above problems and is especially suitable for emerging economies, in this situation Vietnam

The thesis uses an index measuring the risk of financial distress based on accounting data as the Z_score indicator of (Altman, 1968) - the higher the Z_score the lower the risk of financial distress:

𝑇𝐴

In which: WC is the difference between current assets and current liabilities, TA

is total assets, RE is retained earnings, EBIT is earning before tax and interest, MV is market capitalization, TL is total liabilities, SAL is net revenue Altman (1968) argues that when the Z_score > is 2.67, the business is in good financial shape and assesses that the business is not financially distressed in the future Z_score index scores in the zones of 1.81 and 2.67 imply that the business did not have financial problems at the time of the assessment but will fall into financial distress in the near future If the index Z_score < 1.81, then the enterprise is in financial distress and at high risk of bankruptcy Thus, the higher the Z_score index, the more beneficial it is for the business, and is in the danger zone when it reaches 1.81 or below

2.2.2 Independent variables – Corporate social responsibility

The process of measuring CSR indicators of listed enterprises in the study

sample is carried out through the following four steps:

The first step, identify a database that presents contents related to CSR activities

of the enterprise According to the provisions of Clause 2 Article 8 Chapter II of Circular

No 155/2015/TT-BTC (Ministry of Finance, 2015) on guidance on information disclosure of listed enterprises, the contents to be made reports related to sustainable development include: management of raw material sources, energy consumption, water consumption, compliance with environmental protection legislation, policies related to workers, reports related to responsibility to local communities, reports related to green capital markets and information related to sustainable development Thus, the necessary information to help build a CSR index scale for enterprises in the research sample of the thesis has been determined to be based on information published from the financial statements of the enterprise itself

As a second step, proceed to define and group CSR assets for measurement As guided by the study of Gray et al (1995b, 1995a), the thesis measures CSR based on four component responsibilities: environmental responsibility, employee responsibility, product responsibility and community responsibility (Gray et al., 1995a; J Li et al., 2008; Scholtens, 2008; Holder-Webb &; ctg, 2009) Based on the four component responsibility contents, and related terms proposed and selected according to each

component CSR content, a detailed CSR scoring will be presented in Appendix 1: CSR

Scoring criteria of enterprises

In the third step, the evaluation criteria of the four component CSR contents will

be encoded with a binary value, receive a value of 1 if the information in the financial statements shows that the enterprise has mentioned criteria in the corresponding content, and receive a value of 0 in the remaining case left, including: Environmental responsibility includes 8 criteria, employee responsibility includes 6 criteria, community responsibility includes 5 criteria and product responsibility 4 criteria (Ho Thi Van Anh, 2017)

The fourth step is calculating the CSR index by unweighted method, whereby

and the total CSR score of the enterprise is the average of the CSR score of each component (Ho Thi Van Anh, 2017) The formula is as follows:

Component CSR Indexij = 𝛴ⅈ=1𝑘 𝑐𝑟𝑖𝑡𝑒𝑟𝑖𝑎 𝐶𝑆𝑅𝑖𝑗

𝑁ⅈ𝑗Total CSRindex ij = 𝛴ⅈ=14 𝑐𝑜𝑚𝑝𝑜𝑛𝑒𝑛𝑡 𝐶𝑆𝑅 𝑖𝑛𝑑𝑒𝑥 𝑖𝑗

4Which:

• CSRij : get a value of 1 if the information related to the CSR criterion

component i of enterprise j has published information, the opposite is 0

• Nij: Number of component CSR criteria i for business j

In general, the content analysis method is used in CSR measurement in the context of research in Vietnam for three reasons as follows: First, although there are mandatory regulations in the disclosure of information related to the implementation of CSR, there is still no organization to evaluate or rank CSR in Vietnam Secondly, quantitative information on CSR mainly revolves around the disclosure of information about volunteer work and information on welfare expenditures for employees of enterprises, not providing an overall perspective Third, content analysis is a way of encoding the content in written reports into categories built on selected criteria, with the goal of converting data into quantitative scales (Weber, 1990) and this method is widely used in studies related to non-financial disclosure behavior ( Campbell, 2000) and (Holder-Webb & Cohen, 2007; Holder-Webb &; ctg, 2009)

2.2.3 Control variables

The financial index variables used as control variables in the regression model are selected based on a review of relevant studies, including: Size of total assets, financial leverage, research and development capacity, cash holding capacity, liquidity, profitability

SIZE variable measures by Log total assets, controlling the difference in

potential and competitiveness of the business Cormier and Gordon (2001) and Orlitzky (2001) have explored the relationship between company size and CSR activities because the authors argue that large companies have more money, power, and ability to perform larger CSR than smaller companies In addition, Donker et al (2009) and Mselmi et al

(2017) provide evidence for the correlation between enterprise size and FDR The thesis expects Size to have an impact that helps mitigate FDR

Financial leverage variable – LEV measures the ratio of total liabilities to total

assets, controls the use of financial leverage, and evaluates the ability to secure assets for total liabilities of the business Research by Waddock and Graves (1997) has shown that in order to control risk, companies can make decisions related to corporate management and future investment decisions Companies with low debt mobility and stable financial position will put more money into CSR activities than companies with unstable financial positions In addition, for companies with low financial levels, interest expense payable periodically will also be low, so the company will have a lot

of money to consider investing in CSR This is in contrast to businesses that use high financial leverage but have an unstable income stream, which will cause the business to pay too much for interest expense and may lead to the possibility of bankruptcy if the use fails to pay debts to the parties The degree of correlation of financial leverage with FDR has been considered in various studies, the higher the use of financial leverage, the greater the risk of falling into financial distress (Shumway, 2001), (Chava & Jarrow, 2004), (Donker et al., 2009), (Christidis & Gregory, 2010), and (Mario Hernandez Tinoco, 2013) The thesis expects lower financial leverage will lower FDR

Research and development capability variable (R&D): Determined by the

percentage of research and development funds to total assets of the previous year Zhang (2015) argues that investment in R&D increases FDR, as a result of inflexible R&D investment costs and businesses that tend to spend on development investment tend to face financial constraints and are more likely to be forced to stop such projects Therefore, the risk of the enterprise will increase along with the increase in research and development costs of the enterprise

The thesis uses additional CASH ratios and QUICK ratios to control the ability

of businesses to process cyclical payments In addition, ROA is a measure of how well

a company turns its owned capital into profit A high ROA indicates that a company efficiently uses its assets to produce a profit, and vice versa

Finally, the LOSS variable - the pseudo-variable that takes a value of 1 if the net profit of the business is negative and receives a value of 0 in the opposite case) is added

to control profitability

2.3 Research methodology

There are two main methods, quantitative methods and qualitative methods According to Jones (1995) there is no significant distinction between these two methods and these two methods are considered complementary Hoepfl (1997) points out that researchers use quantitative measures to test research hypotheses In addition, quantitative studies emphasize the measurement and analysis of causal relationships between variables (Denzin and Lincoln, 1998) In this paper, the author investigates the relationship between CSR implementation and the risk of financial distress of the business, including the measurement of relevant indicators Therefore, the paper using quantitative methods is the main method in this study

In addition, qualitative methods are also used by the author to search, analyze and code based on relevant domestic and foreign studies to come up with variables In particular, to be able to evaluate the CSR score, the author has collected CSR information disclosure data of listed enterprises in the plastics–chemicals industry group based on annual reports and sustainable development reports

Regression model

The thesis uses a variety of regression methods that perform an assessment of the impact of CSR on FDR including OLS, FEM, REM methods These are quite common methods in table data regression estimates The linear model is presented as follows:

𝑌𝑖𝑡 = 𝛼 + 𝛽𝑋𝑖𝑡+ 𝜇𝑖𝑡

In which: i is the enterprise and t is the time; Yit is the dependent variable of the enterprise year t; ∝ is the blocking factor; Xit is a vector of independent variables; β is the estimation parameter and μit is the residual

In cases where unobserved factors or individual influences of each enterprise do not exist and the μit residual does not correlate with Xit independent variables, then the OLS estimates will not be biased and ensure stability However, the existence of