Working Paper: CEPR ID: DP10399
Authors: Karl V. Lins; Henri Servaes; Ane Tamayo
Abstract: We study the extent to which a firm?s social capital, as measured by the intensity of a firm?s corporate social responsibility (CSR) activities, affects firm performance during the 2008-2009 financial crisis. We find that high-CSR firms have crisis-period stock returns that are four to five percentage points higher than low-CSR firms, all else equal. In contrast, we find no difference in returns between high- and low-CSR firms either before or after the crisis. During the crisis, high-CSR firms also experience higher profitability, sales growth, and sales per employee and a decline in their accounts receivable relative to low-CSR firms. This evidence is consistent with the view that the trust between the firm and its stakeholders and investors, built through investments in social capital, pays off when the overall level of trust in corporations and markets suffers a negative shock.
Keywords: Corporate Social Responsibility; Financial Crisis; Social Capital; Trust
JEL Codes: G30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| CSR ratings (M14) | stock returns (G12) |
| CSR ratings (M14) | profitability (L21) |
| CSR ratings (M14) | sales growth (O49) |
| CSR ratings (M14) | reduced accounts receivable (M41) |
| high CSR firms (G38) | outperform during the crisis (H12) |
| CSR (M14) | trust among stakeholders (O36) |
| trust among stakeholders (O36) | better financial outcomes during crises (G01) |
| No outperformance before or after the crisis (G01) | CSR benefits pronounced during crisis (H12) |