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Corporate social responsibility and stock resilience to COVID-19: A contract theory perspective

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  • Lu, Jun
  • Li, Wengui
  • Huang, Wei

Abstract

Drawing on contract theory, we predict that robust corporate social responsibility (CSR) practices can play a pivotal role in maintaining stakeholder support and safeguarding shareholder values amidst significant financial uncertainties caused by COVID-19 outbreaks. Through empirical tests centered on the January 2020 outbreak in China, we investigate whether pre-pandemic CSR performance influences firm resilience during the crisis. Results show high-CSR firms experienced moderate stock gains, while low-CSR firms faced significant losses around the Wuhan lockdown. Controlled models affirm a positive link between CSR ratings and abnormal stock returns during the outbreak, especially for firms in heavily affected regions and competitive industries. In line with contract theory, our findings underscore how strong pre-pandemic CSR enhances profitability and mitigates uncertainty across operations, supply chains, and demand fluctuations.

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  • Lu, Jun & Li, Wengui & Huang, Wei, 2024. "Corporate social responsibility and stock resilience to COVID-19: A contract theory perspective," International Review of Economics & Finance, Elsevier, vol. 89(PB), pages 12-29.
    • Handle: RePEc:eee:reveco:v:89:y:2024:i:pb:p:12-29
    DOI: 10.1016/j.iref.2023.10.001
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    More about this item

    Keywords

    COVID; CSR; Stock performance; China;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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