Is CSR Engagement Rewarded Equally Across Supply Chain Positions? Evidence from COVID-19

Corporate social responsibility (CSR) has been adopted as one of firms’ risk management tools to resist negative shocks. However, it is unclear which aspect of CSR works and whether it differs among firms in different supply chain positions. Knowing this is crucial for firms to formulate better CSR portfolios in their operations according to their respective situations. The COVID-19 outbreak, a huge exogenous shock, provides us with an opportunity to test the above questions. In this study, we use data on 3,655 Chinese firms to evaluate how CSR influences the reaction of stock market performance to the increase in COVID-19 cases, including those in China (national outbreak) and global ones excluding China (global pandemic). We find that stock returns declined significantly as the number of COVID-19 cases increased. Firms with stronger preexisting CSR performance experienced a milder drop in stock returns induced by the national outbreak. Among the three metrics of CSR (environmental, social, and governance), environmental and social responsibilities are more prominent insurances when facing a national COVID-19 outbreak, while corporate governance works better in the face of a global pandemic. We also find that this insurance-like protection of CSR differs among firms in different supply chain positions. Specifically, the effect of CSR is more pronounced for firms closer to the end consumers. Service companies are more rewarded for their CSR performance in the face of a national outbreak, final product manufacturers are more rewarded in the presence of a global pandemic, and material or component suppliers obtain the least benefit from CSR. Our findings yield insights for firms to optimize their CSR practice portfolios and for the firms as well as the government to manage social responsibility in supply chains.