Does CSR Matter in Times of Crisis? Evidence from the COVID-19 Pandemic  

47 Pages Posted: 9 Nov 2020 Last revised: 27 Mar 2023

See all articles by Kee-Hong Bae

Kee-Hong Bae

York University - Schulich School of Business

Sadok El Ghoul

University of Alberta - Campus Saint-Jean

Zhaoran Gong

Xi'an Jiaotong-Liverpool University (XJTLU) - International Business School Suzhou

Omrane Guedhami

University of South Carolina - Moore School of Business

Date Written: December 1, 2020

Abstract

The debate over how firm stakeholder engagement is tied to preserving shareholder wealth has received growing attention in recent years, especially in the wake of the COVID-19 crisis. Against this backdrop, we examine the relation between corporate social responsibility (CSR) and stock market returns during the COVID-19 pandemic-induced market crash and the post-crash recovery. Using a sample of 1,750 U.S. firms and two major sources of CSR ratings, we find no evidence that CSR affected stock returns during the crash period. This result is robust to various sensitivity tests. In additional cross-sectional analysis, we find some supporting evidence, albeit weak, that the relation between CSR and stock returns during the pandemic-related crisis is more positive when CSR is congruent with a firm’s institutional environment. We also find that Business Roundtable companies, which committed to protecting stakeholder interests prior to the pandemic, do not outperform during the pandemic crisis. We conclude that pre-crisis CSR is not effective at shielding shareholder wealth from the adverse effects of a crisis, suggesting a potential disconnect between firms’ CSR orientation (ratings) and actual actions. Our evidence suggests that investors can distinguish between genuine CSR and firms engaging in cheap talk.

Keywords: Stakeholder welfare vs. shareholder value; Corporate social responsibility; Stock return performance; COVID-19 crisis; Valuation channels

JEL Classification: G32; M14

Suggested Citation

Bae, Kee-Hong and El Ghoul, Sadok and Gong, Zhaoran and Guedhami, Omrane, Does CSR Matter in Times of Crisis? Evidence from the COVID-19 Pandemic   (December 1, 2020). Journal of Corporate Finance, Available at SSRN: https://ssrn.com/abstract=3726390 or http://dx.doi.org/10.2139/ssrn.3726390

Kee-Hong Bae

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
416-736-2100 ext) 20248 (Phone)
416-736-5687 (Fax)

Sadok El Ghoul (Contact Author)

University of Alberta - Campus Saint-Jean ( email )

Edmonton, Alberta T6G 2R3
Canada
780-465-8725 (Phone)
780-465-8760 (Fax)

Zhaoran Gong

Xi'an Jiaotong-Liverpool University (XJTLU) - International Business School Suzhou ( email )

111 Ren'ai Road
Suzhou Industrial Park
Suzhou, Jiangsu 215123
China

Omrane Guedhami

University of South Carolina - Moore School of Business ( email )

Columbia, SC
United States

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