How Does Corporate Social Responsibility Shield Firms From the Adverse Effects of the COVID‐19 Pandemic? the Role of Financial Flexibility

ABSTRACT This study examines whether financially endorsed corporate social responsibility (CSR) commitments improved the stock market performance of China's listed firms during the COVID‐19 pandemic. We find that CSR itself did not lead to higher stock returns during the crisis period of the pandemic, suggesting that the moral (social) capital from CSR could not solely provide an “insurance‐like” buffer against the shock. In contrast, our results show that CSR commitments generate higher stock returns when firms are more financially flexible, implying that financial flexibility endorses implicit CSR commitments to stakeholders during a crisis. Our results are robust to a difference‐in‐differences specification, alternative CSR measures and the inclusion of additional controls.