Social Capital, Trust, and Corporate Performance: How CSR Helped Companies During the Financial Crisis (and Why it Can Keep Helping Them)

15 Pages Posted: 27 May 2020

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

affiliation not provided to SSRN

Date Written: Spring 2019

Abstract

The authors summarize the findings of their study, published recently in the Journal of Finance, that shows that CSR investments can help companies when they perhaps need it most—that is, during sharp downturns when overall trust in companies and markets declines. Companies with high‐CSR rankings experienced stock returns that were five to seven percentage points higher than their low‐CSR counterparts during the 2008–2009 financial crisis, and even larger excess returns during the Enron crisis of 2001–2003. High‐CSR companies during the crisis also reported better operating performance, higher growth, higher employee productivity, and greater access to debt markets—while continuing to generate higher shareholder returns as late as the end of 2013. Many of these operating improvements continued well into the post‐crisis period, though at more modest levels. As the authors view their findings, the ‘social capital’ built up by corporate CSR programs complements effective financial capital management in increasing shareholder wealth mainly by limiting companies' downside risk. CSR is seen as not only reducing systematic as well as firm‐specific risk, but as also providing protection against overall ‘loss of trust.’ The social capital created by CSR programs is said to provide a kind of insurance policy that pays off when investors and the overall economy face a severe crisis of confidence.

Suggested Citation

Lins, Karl V. and Servaes, Henri and Tamayo, Ane, Social Capital, Trust, and Corporate Performance: How CSR Helped Companies During the Financial Crisis (and Why it Can Keep Helping Them) (Spring 2019). Journal of Applied Corporate Finance, Vol. 31, Issue 2, pp. 59-71, 2019, Available at SSRN: https://ssrn.com/abstract=3604416 or http://dx.doi.org/10.1111/jacf.12347

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 Tamayo

affiliation not provided to SSRN

No Address Available

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
1
Abstract Views
64
PlumX Metrics