Do Socially Responsible Firms Survive Longer Under Climate and Pandemic Crises?

Over the past decade, corporate social responsibility (CSR) has come to the forefront of attention both in the corporate environment and in the academic literature. According to the Global Sustainable Investment Review 2018, global CSR investment has reached $30 trillion—up 68% since 2014 and tenfold since 2004. The COVID-19 pandemic has caused severe disruption to businesses across all sectors, and firms are faced with navigation of a new economic landscape to ensure long-term survival. In the midst of these challenging times, CSR is expected to contribute toward the well-being of society.

In a new paper titled ‘CSR and Firm Survival: Evidence from the Climate and Pandemic Crises’, we show 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. The latter suggests that some CSR dimensions are more important than others in influencing the probability of default.

We reveal CSR as being important for firms with weak governance that operate in competitive industries for two reasons: first, although it may have a disciplinary effect, competition can also induce managers to manipulate financial outcomes, suggesting that firms operating in fiercely competitive environments are not always efficiently monitored; second, while firms are more likely to fail when operating in highly competitive industries, a greater degree of engagement in CSR activities can help them differentiate from their competitors, thus prolonging their survival.

In our study we explore the potential impact of CSR activities on firms’ short-term performance and long-term survival during a pandemic. In particular, we find that high-CSR firms have greater survivability than low-CSR firms and this effect is more pronounced in regions that experience higher infection rates. Furthermore, we show that high corporate social performance boosts financial performance during pandemic periods. We also investigate the effects of CSR on regional pandemics. We document that for regions that have higher CSR scores or a larger number of high-CSR firms, the future pandemic infection rate is lower in comparison to other regions.

After evaluating the merits of engaging in CSR activities during a pandemic we investigate how climate change affects high-CSR firms’ performance and survivability. We show that while firms in low-CO2 states generally struggle to survive, those with high CSR levels have substantially better survival rates as well as better financial performance. In terms of the impact of temperature change, we show that firms with high CSR levels tend to demonstrate better financial performance and survive longer than firms with low CSR levels.

Evidently, CSR can represent a successful marketing strategy, improving a firm’s competitive advantage and thereby extending its survival. We report that firms with high-CSR policies are 12% less likely to delist in a highly competitive market, and that CSR activities are more important for firms in industries involving high competition. In addition, we explore the role of corporate monitoring on the relation between CSR and firm survival. We observe high levels of CSR prolong survival periods in poorly governed firms and those with low levels of institutional ownership. The results highlight the complementary role that CSR plays in relation to corporate governance.

Finally, we show that better financial performance, fewer capital constraints, CEO behavioral discipline, and higher labor productivity are all channels through which firms with high CSR ratings improve their chances of survival.

Thomas J. Chemmanur is a Professor of Finance at the Carroll School of Management, Boston College.

Dimitrios Gounopoulos is Professor of Accounting and Finance at the University of Bath.

Panagiotis Koutroumpis is a Lecturer of Economics and Finance (adjunct staff) in the School of Economics and Finance at Queen Mary University of London.

Yu Zhang is a Lecturer in Accountancy at the University of College, Dublin, Ireland.