CSR and Firm Survival: Evidence from the Pandemic and the Climate Crisis

The global challenges of climate change and COVID-19 have created a grim economic outlook, with companies fighting for their very survival. As a result, companies are boosting their brands, and ability to compete, with Corporate Social Responsibility (CSR) programs. The airline industry, for example, responded to the pandemic and pressure to reduce CO2 emissions by playing a crucial role in transporting medical equipment necessary to tackle Covid-19. This step not only contributed to the well-being of society, but also improved the industry’s image and the ability of airlines to survive.

In a new paper titled “CSR and Firm Survival: Evidence from the Climate and Pandemic Crises,” we show that engagement in CSR activities is particularly important for firm survival during pandemics and under adverse climate conditions. More specifically, in highly infected regions and during the peak of a pandemic, firms with significant CSR activities demonstrate substantially higher survival rates than other companies do. Furthermore, infection rates are significantly lower in regions where companies engage heavily in CSR. This evidence suggests that CSR has dual benefits: It helps companies survive and contributes to the fight against the pandemic. Similarly, we use state-level CO2 emissions and temperature deviation from the mean as proxies for climate change risk and find that, in states with reduced levels of CO2 emissions and greater temperature departures from the mean, firms with substantial CSR activities survive longer and perform better financially.

Furthermore, the association between CSR and firm survival is stronger when firms operate in industries with greater competition, suggesting that CSR generates a competitive advantage that helps firms outperform their rivals. We also document that better financial performance, less stringent financial constraints, greater managerial discipline, and enhanced labor productivity are some of the channels through which firms engaging in more CSR activities achieve longer survival times. By contrast, a negative association between CSR activities and corporate failure is more pronounced when a firm’s internal and external monitoring mechanisms are weak.

We argue that the higher a firm’s CSR involvement, the better its access to financing and, in turn, the higher its probability of survival, suggesting that fewer capital constraints is a channel through which high-CSR firms survive longer. CSR also improves a firm’s image and relationship with politicians and bankers, making it more likely that the firm will be able to get financial injections when necessary.

We also investigate the relationship between CEO turnover and corporate performance in firms with high CSR levels. We report that CEOs in more socially responsible firms face a higher risk of dismissal when delivering a poor performance than do CEOs at companies with lower CSR activities. The latter could explain why high-CSR firms survive longer. Similarly, we document that employees tend to be more productive in firms with high levels of CSR. Finally, our study reveals that CSR can be essential to the survival of companies, especially older and larger, which tend to have the resources and managerial experience necessary to implement policies that advance a social responsibility agenda.

This post comes to us from Thomas J. Chemmanur, a professor of finance at Boston College’s Carroll School of Management; Dimitrios Gounopoulos, a professor of accounting and finance at the University of Bath; Panagiotis Koutroumpis, an adjunct lecturer of economics and finance in the School of Economics and Finance at Queen Mary University of London; and Yu Zhang, a lecturer in accountancy at University College Dublin. It is based on their recent article, “CSR and Firm Survival: Evidence from the Climate and Pandemic Crises,” available here.