Corporate social responsibility (CSR) has been interpreted as a financial insurance tool, yet its effectiveness remains debated. Not all stakeholders exert comparable influence on firm performance, raising questions about when and for whom CSR acts as an effective insurance mechanism during crises. While prior studies differentiate between primary and secondary stakeholders, we argue that stakeholder influence, rather than stakeholder type, determines CSR’s insurance effect: CSR protects firm value when it is aligned with the claims of influential stakeholders rather than non-influential ones. In contrast to prior studies that focus on firm-specific crises such as corporate misconduct, we examine the less studied role of CSR as an insurance against exogenous shocks. We test our arguments using the exogenous market shock induced by Covid-19, leveraging a difference-in-differences design. We find that companies with salient CSR activities related to influential stakeholders have better financial performance, in terms of risk and return measures, during the crisis compared to firms whose salient CSR is concentrated on non-influential stakeholders. Notably, companies focusing their CSR activities on influential stakeholders are the only ones that do not experience a significant decline in stock returns during the market crash.
Fassi et al. (Tue,) studied this question.