Financial Distress and Financial Perfomance: Investigating Moderating Effect of CSR

2.4 Relationship between Financial Distress and Financial Performance

Financial distress (financial distress) is often considered a bad financial structure and brings financial risk to the company[10]. A company's financial performance is a picture of its financial status that can be checked using financial analysis tools to measure a company's positive and changing financial position that accurately reflects its business. Profit is anticipated in business since it allows the company to function and follow its strategy but, if a company is unable to compete with other firms, it may incur losses. The company will face financial distress. [11] and [12] in their research reveal that profitability and financial distress have a negative and significant causal association between. Therefore, the first hypothesis proposed in this study is:

H1: Financial Distress hinders the company's financial performance.

2.5 Relationship between CSR and Financial Performance

CSR disclosure may have a good influence on entities because by implementing CSR initiatives, the firm can offer the public trust in the company's products, therefore increasing the company's reputation in the eyes of the community [13]. ROA can quantify the company's capacity to make profits in the past and then become a prediction in the future, and it can measure the overall efficiency of capital usage. Research conducted [14] found that Corporate social responsibility activities have a positive impact on company success. [15]A positive CSR is more likely to forewarn of bad financial performance. According to research conducted by [16] CSR is positively associated to financial performance, lending credence to the notion that CSR is a strategic choice made by a company. When a company is in financial distress, management will prioritize the interests of shareholders over Corporate Social Responsibility, and they will not commit to implementing CSR in the same manner that they would accept the risk of cutting out of their budgets. Even if the corporation meets its social commitments, it finds it difficult to translate its social responsibility into corporate profitability in the same way that companies with good financial performance do. Research conducted by [17]demonstrates a negative and statistically significant causal link between CSR and financial distress. As a result, the authors employ corporate social responsibility (CSR) as a mediator in the link between financial difficulty and financial performance. This formulating the following hypothesis:

H2: CSR is positively related to the company's financial performance.

H3: CSR moderates the relationship between financial distress and financial performance.

Figure 1 illustrates the proposed hypothesis and theoretical framework. The first and second hypotheses are provided in order to identify the influence of CSR and financial distress on financial performance. In Hypothesis 3, we concentrate on the moderating influence of CSR on the connection between financial distress and financial performance.

III. METHOD

This study makes use of secondary data in the form of financial report (annual reports) from firms listed on the Indonesia Stock Exchange in the primary consumer goods companies sector in 2019-2020. The data for this study were obtained from the Indonesia Stock Exchange's official website (www.idx.com). The purposive sampling strategy was employed in this study. The manufacturing companies in this sample consist of:

1) Primary consumer goods companies listed on the Indonesia Stock Exchange for the period 2019

2) Primary consumer goods companies that disclose consecutive annual reports for 2019 –2020

2020