Political uncertainty, corporate social responsibility, and firm performance

Abstract

Our study reveals that companies with higher Corporate Social Responsibility (CSR) ratings exhibit superior stock returns compared to their counterparts with lower ratings during periods of political uncertainty. This phenomenon is more pronounced in a closely contested election with a higher degree of unpredictability. Our results remain robust after addressing potential endogeneity issue and are not affected by the ex-post election outcome or the political donations made by firms. Further analysis indicates that the increase in returns could be attributed to the improved relationship between firms and their internal stakeholders. Overall, our research supports the notion that investing in social capital can facilitate the establishment of stronger relationships with stakeholders, which can ultimately lead to beneficial outcomes during periods of adversity.