The Insurance Value of CSR during the Financial Crisis in Taiwan

Abstract

This study examines the impact of CSR activities on corporate financial performance by using data from 514 listed companies in Taiwan during the period of the 2008 financial crisis. To measure the CSR performance, this study refers to independent international CSR valuation institutions to compile CSR indicators for individual Taiwanese firms. The results show that CSR activities before the 2008 financial crisis are associated with positive stock returns during the crisis. In addition, after comparing the in-crisis and post-crisis periods, it is found that CSR indeed offers an insurance value for a firm's stock performance during the crisis period. We conclude that CSR does play a protective role for firms when a market encounters a widespread trust crisis. Furthermore, the results highlight the importance of wider engagement in CSR practices for firms, not only to boost their reputation but also for the insurance value, which will pay off during unexpected negative trust events. Contribution/Originality:This study uses a new estimation methodology to evaluate the CSR performance of listed firms in Taiwan during the financial crisis period. The paper not only addresses the problem of a lack of consistent CSR metrics for firms in a developing economy but also proposes a reasonable method for evaluating these firms' environmental efforts. INTRODUCTIONWith the collapse of Lehman Brothers during the financial crisis of 2007-2008, the trust in the global capital market was eroded, highlighting the importance of Corporate Social Responsibility (CSR) investments at the firm level. According to a recent study, Lins, Servaes, and Tamayo (2017) suggest that firm-specific social capital can be viewed as an insurance policy that pays off when stakeholders, as well as the entire economy, are faced with a serious trust crisis. Other studies demonstrate that social performance creates not only wealth-enhancing value but also insurance value that is captured in stock markets (Ducassy, 2013;Oikonomou, Brooks, & Pavelin, 2012).In recent decades, CSR has gained worldwide attention in various industries. The scholarly definition of CSR approaches is relatively broad, and it is commonly understood as the methods by which companies integrate social, environmental, and stakeholder concerns in their business operations (European Commission, 2011). The development of CSR involves high levels of attention not only to conducting CSR activities but also to maximizing

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