Corporate Social Responsibility and Stock Returns during the Financial Crisis: Evidence from Europe

Abstract

Firms with high social capital, as measured by corporate social responsibility (CSR) enjoyed 6-7% higher excess returns compared to low-CSR firms in Europe during the financial crisis of 2008- 2009. Regional and industry trust are also positively related to firm’s CSR activities and excess crisis-period returns, and the effectiveness of CSR on excess returns varies substantially across the Europe and industries. I also find that external stakeholder activities targeted to environmental issues were most appreciated by investors during the crisis, while other CSR activities had insignificant effect on crisis-period returns. The evidence suggests that social capital and trust, built through CSR activities, serve as an insurance policy for negative events which benefits when overall trust in the economy declines.