Corporate Social Responsibility and Firms' Resilience to External Disruptions

Abstract

We propose that corporate social responsibility (CSR) serves as an intangible investment in stakeholder relationships to guard against external disruptions. Using a stylized model with customers’ and employees’ preferences for CSR, we hypothesize that CSR investment, while costly, helps firms recover from external disruptions. Using factory location data from the toxic release inventory (TRI) database to specify firms’ geographic distribution, we find that firms with higher CSR ratings are much less affected by major natural disasters in profitability. We then examine the customer and employee mechanisms through which CSR engagement shields firms against major natural disasters. We find that CSR helps firms survive major natural disasters by enhancing customer satisfaction, which leads to more stable post-disaster sales, and by enhancing employee satisfaction, which leads to higher post-disaster productivity.