Stakeholder influence and the financial effect of corporate social performance

The Covid-19 pandemic represents a unique exogenous shock that allows to test for the causal relationship between corporate social performance (CSP) and corporate financial performance (CFP). We examine this relationship using both stock returns and risk measures across a sample of companies in the travel and leisure (T&L) industry, known as the most affected industry in this period. Our findings are summarized around three main contributions. (1) Consistent with stakeholder salience theory, we find supporting evidence that the CSP-CFP relationship depends on the salience of CSR activities. Unlike for non-salient activities, higher CSP in salient activities is associated with higher CFP. (2) We find that companies following a stakeholder salience approach (high-CSP only for salient CSR activities) outperform their peers adopting either a stakeholder approach (high-CSP for all CSR activities) or a shareholder approach (low-CSP for all CSR activities) and constitute the only group of companies that did not experience a decline in stock returns during the Covid-19 market crash. (3) We find that the CSP-CFP relationship is inverted U-shaped and salience increases the optimal level of CSP that maximizes CFP, suggesting that higher levels of CSP reduce the salience of activities