The value of tactical and strategic CSR during crises of trust : evidence from the great recession

Abstract

In 2017, Lins, Servaes and Tamayo found that firms’ level of CSR activities affected firm performance during the 2008, 2009 financial crisis positively. In this master’s thesis, I aim to analyze the relationship on a more nuanced level differentiating between the effects of strategic CSR (activities with long-term stakeholder focus, large resource commitments and significant structural adjustments) and tactical CSR (transactional activities with short-term stakeholder focus and relatively few organizational resources). Taking the specifics of each kind of CSR into account, I theorize on the mechanisms underlying a potential outperformance and argue that both contribute to firm performance during crises of trust like the Great Recession. Furthermore, I argue that strategic CSR activities contribute more to firm performance than do tactical initiatives. Before conducting the empirical analysis, I point out that Lins et al.’s (2017) proxy for CSR activities is flawed. In their measure, they combine ratings on CSR items which lack convergent validity. Using a more valid proxy of firms’ CSR activities, I find no significant relationship between CSR, strategic CSR, or tactical CSR and firm performance during the period of interest in my main analysis. Constructing yet another, and arguably more objective proxy for firms’ tactical CSR activities, I find in a robustness test evidence that TCSR affected stock performan-ce during the recession positively. As data for constructing this proxy was available for only a small sub-sample that is significantly different from the rest of the sample, I cannot infer from the robustness test the overall relationship between TCSR and firm performance during the Great Recession. Given the different results from main analysis and robustness test, the research question cannot be answered conclusively with the data available. However, my study makes important contributions to research on the relationship between CSR and profitability. Besides finding evidence for a non-negative relationship between TCSR, SCSR and firm performance in my main analysis and evidence for an outperformance stemming from TCSR in a robustness test, I show that the results of Lins et al. (2017) are not as valid and robust as they had suggested. Not only do I point out that their measure of CSR is flawed, I also show that their main results are sensitive to the time period analyzed and that the positive relationship they found between CSR and operating performance may be explained with industry effects. Furthermore, a theoretical in-depth analysis on the relationship between CSR, SCSR, and TCSR and firm performance during crises of trust has not been performed before by researchers.