Social Capital, Trust, and Firm Performance During the Financial Crisis

49 Pages Posted: 10 Feb 2015

See all articles by Karl V. Lins

Karl V. Lins

University of Utah - Department of Finance

Henri Servaes

London Business School; Centre for Economic Policy Research (CEPR)

Ane Tamayo

London School of Economics & Political Science (LSE)

Multiple version iconThere are 2 versions of this paper

Date Written: February 2015

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 Classification: G30

Suggested Citation

Lins, Karl V. and Servaes, Henri and Tamayo, Ane Miren, Social Capital, Trust, and Firm Performance During the Financial Crisis (February 2015). CEPR Discussion Paper No. DP10399. Available at SSRN: https://ssrn.com/abstract=2562924

Karl V. Lins (Contact Author)

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112
United States
801-585-3171 (Phone)
801-581-7214 (Fax)

Henri Servaes

London Business School ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom
+44 20 7000 8268 (Phone)
+44 20 7000 8201 (Fax)

HOME PAGE: http://faculty.london.edu/hservaes/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Ane Miren Tamayo

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom
+44 (0)20 78494689 (Phone)

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