Corporate Social Responsibility and Disruption Recovery from Natural Disasters

33 Pages Posted: 28 Nov 2018 Last revised: 27 Jan 2022

See all articles by Po-Hsuan Hsu

Po-Hsuan Hsu

National Tsing Hua University - Department of Quantitative Finance; National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER)

Hsiao-Hui Lee

National Chengchi University (NCCU) - Department of Management Information Systems

Long Yi

Hong Kong Baptist University (HKBU) - Department of Finance and Decision Sciences

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

Suggested Citation

Hsu, Po-Hsuan and Lee, Hsiao-Hui and Yi, Long, Corporate Social Responsibility and Disruption Recovery from Natural Disasters (January 26, 2022). Available at SSRN: https://ssrn.com/abstract=3275063 or http://dx.doi.org/10.2139/ssrn.3275063

Po-Hsuan Hsu (Contact Author)

National Tsing Hua University - Department of Quantitative Finance ( email )

101, Section 2, Kuang-Fu Road
Hsinchu, Taiwan 300
China

National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER) ( email )

BIZ 2 Storey 4, 04-05
1 Business Link
Singapore, 117592
Singapore

Hsiao-Hui Lee

National Chengchi University (NCCU) - Department of Management Information Systems ( email )

No. 64, Section 2, Zhǐnán Rd
Wenshan District
Taipei City
Taiwan

Long Yi

Hong Kong Baptist University (HKBU) - Department of Finance and Decision Sciences ( email )

Hong Kong

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