Corporate Social Responsibility and Disruption Recovery from Natural Disasters
33 Pages Posted: 28 Nov 2018 Last revised: 27 Jan 2022
Date Written: January 26, 2022
Abstract
Natural disasters not only hurt corporate operations and financial performance, but also affect relevant stakeholders, such as employees and customers, in various ways. In this paper, we hypothesize that corporate social responsibility (CSR), though costly, can be an intangible investment for managing stakeholder relationships as firms seek to quickly recover from such disasters. To support our hypothesis, we first derive a stylized model that captures employees’ and customers’ preferences for CSR. Next, by using the toxic release inventory database that provides factory locations for US manufacturing firms, we empirically find that the operating performance of firms with higher CSR ratings is much less affected by major natural disasters. To understand the role of stakeholders, we also examine employee and customer mechanisms through which CSR activities mitigate negative impacts of natural disasters. Our results show that CSR helps firms mitigate the negative impacts from major natural disasters by increasing employee satisfaction (which is associated with higher post-disaster productivity) and customer satisfaction (which is associated with higher post-disaster sales).
Keywords: natural disasters; corporate social responsibility; operating performance; sustainability; customer loyalty; employee satisfaction
JEL Classification: L10
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