Social Capital, Trust, and Firm Performance: The Value of Corporate Social Responsibility during the Financial Crisis

We study the extent to which a firm's social capital, as measured by the intensity of a firm's corporate social responsibility (CSR) activities, affects firm performance during the 2008-2009 financial crisis. We find that high-CSR firms have crisis-period stock returns that are four to seven percentage points higher than low-CSR firms, all else equal. In contrast, we find no difference in returns between high- and low-CSR firms either before or after the crisis. During the crisis, high-CSR firms also experience higher profitability, sales growth, and sales per employee relative to low-CSR firms, and they are able to raise more debt. This evidence is consistent with the view that the trust between the firm and its stakeholders and investors, built through investments in social capital, pays off when the overall level of trust in corporations and markets suffers a negative shock.