<p>It is widely accepted in academic literature that high levels of debt can inhibit firms’ investments in corporate social responsibility (CSR). Additionally, there is an ongoing debate regarding the correlation between CSR and corporate financial performance. However, many excessively leveraged companies in China continue to make substantial investments in CSR. Existing theories fail to explain this unique phenomenon and predict its economic consequences. This research, based on China’s distinct institutional framework, adopts an institutional theory perspective to systematically examine the influence of excessive debt on CSR. More importantly, it assesses the economic consequences of excessively leveraged firms’ increased CSR investments from two dimensions: financial performance and bankruptcy risk. Empirical analysis of 11,572 observations from Chinese excessively leveraged listed companies between 2010 and 2021 reveals that excessive leverage significantly enhances CSR engagement, suggesting that firms are attempting to gain legitimacy through increased CSR engagement. However, this behavior leads to an economic efficiency dilemma: the interaction between debt levels and CSR significantly reduces financial performance and increases bankruptcy risk. Extended analysis shows that negative media attention strengthens the positive link between excess leverage and CSR, while weaker regional government intervention reduces this effect. This finding provides a new theoretical perspective for understanding the complex relationship between debt levels and CSR while also demonstrating how CSR’s impact on financial performance is influenced by the specific condition of excessive debt.</p>