Study examines whether corporate social responsibility matters in times of crisis

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Corporate social responsibility (CSR) is not effective at shielding shareholder wealth from the adverse effects of a crisis such as the COVID-19 pandemic, suggesting a potential disconnect between a company’s CSR orientation (what it believes) and its actual actions (what it does), according to a new study in the Journal of Corporate Finance.

Kee-Hong Bae
Kee-Hong Bae

The research paper, which examines the relation between CSR activities and shareholder value during the COVID-19 stock market crash, was co-authored by Kee-Hong Bae, professor of finance and Bob Finlayson Chair in International Finance at York University’s Schulich School of Business; Sadok El Ghoul, from Campus Saint-Jean at the University of Alberta; Zhaoran (Jason) Gong, from Lingnan University in Hong Kong; and Omrane Guedhami, from the Darla Moore School of Business at the University of South Carolina.

The researchers studied 1,750 U.S. firms and two major sources of CSR ratings, and found no evidence that CSR affected stock returns during the period immediately following the COVID-19 pandemic when the stock market crashed. In addition, the researchers found that Business Roundtable companies, an association representing CEOs from many of America’s largest corporations, did not attain better stock performance during the crisis.

Business Roundtable companies that powerfully demonstrated a CSR commitment to stakeholders just prior to the crisis did not perform any differently during the crisis,” said Bae.

Bae also said the pandemic exposed some companies’ avowed CSR values and principles as being mostly a public relations exercise. While some companies stepped up to the plate by helping employees (e.g., increasing their hourly wage), customers (e.g., offering unlimited mobile data), and suppliers (e.g., accelerating payments), other companies with strong CSR reputations laid off a significant percentage of their workforce, jeopardizing employees’ healthcare benefits at a time when they were arguably needed the most.

The article “Does CSR matter in times of crisis? Evidence from the COVID-19 pandemic” is available online.