CSR and Firm Survival: Evidence from the Climate and Pandemic Crises

Abstract

We analyse the relationship between the extent of a firm’s corporate social responsibility (CSR) and its long-term survival probability. Based on a “nexus of contracts” view of the firm, we conjecture that a better CSR rating is associated with a lower probability of corporate failure and a longer survival period. Consistent with this, we document that four CSR dimensions (environment, community, employee relations, and product) out of six are positively related to firms’ survival probability. We find that a firm’s engagement in CSR activities is particularly crucial for firm survival during pandemics and in states with greater uncertainty induced by climate change and greater demand for regulation related to climate change. The positive association between CSR ratings and firm survival is stronger for firms operating in more competitive industries and those with weaker governance. Finally, better financial performance, more relaxed financial constraints, and enhanced labor productivity are three of the channels through which firms engaging in more CSR activity achieve longer survival times.

Keywords: Corporate Social Responsibility, Climate Change, Pandemic Uncertainty, Firm Survival, Corporate Governance

JEL Classification: G30, G41, M14