Salience of stakeholders’ claims and the financial effect of corporate social performance

We examine the relationship between corporate social performance (CSP) and corporate financial performance (CFP) using the Covid-19 pandemic as an exogenous shock. 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