The use of corporate social responsibility in response to product‐harm crisis: How do stock market reactions matter?

Author:

Ouyang Zhe1ORCID,Wang Xiaojiao1,Liu Yang2ORCID

Affiliation:

1. Department of Business Administration Nanjing University of Finance and Economics Nanjing Jiangsu People's Republic of China

2. School of Economics and Management Nanjing University of Science and Technology Nanjing Jiangsu People's Republic of China

Abstract

AbstractThe initial stock market reaction to a product‐harm crisis is an important factor motivating firms to engage in corporate social responsibility (CSR). By analyzing event data on product‐harm crises in Chinese listed companies spanning from 2009 to 2019, we uncover evidence that crisis‐related abnormal returns have a significant negative association with the subsequent growth of CSR. Importantly, we find that this negative relationship is especially pronounced for firms that have a greater need to restore moral legitimacy, such as those receiving high levels of media favorability and positive analyst recommendations. These findings offer novel insights into the motivations behind firms' increased investment in CSR following product‐harm crises from a legitimacy perspective.

Funder

National Natural Science Foundation of China

Publisher

Wiley

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