The COVID-19 pandemic caused significant global economic shocks and market disruptions, particularly impacting stock markets. This study explores the role of CSR as a risk-mitigation tool in this context, examining whether it can alleviate the negative impact on CSP. Previous research demonstrates CSR's positive influence on corporate performance, but its specific effects during a major crisis like the COVID-19 pandemic, and the differing roles of strategic and responsive CSR, remain under-researched. This study aims to address this gap by analyzing the Chinese stock market during the 2020 lockdown period, focusing on the moderating effects of different CSR approaches on CSP during and after the pandemic. The study's importance stems from the need to understand how firms can manage risks and enhance resilience during large-scale negative economic shocks. The Chinese stock market provides a rich context due to the significant impact of the pandemic in China and the varied nature of Chinese firms (state-owned vs. non-state-owned).

Existing literature shows that public health crises negatively affect financial markets, leading to stock market declines and increased volatility. The COVID-19 pandemic exemplified this, with significant drops in various stock market indices globally. Studies highlight CSR's importance in mitigating the negative impacts of emergency events on firms. The theoretical basis for CSR's impact on CSP rests on its role as a risk management tool, influencing stakeholder groups, protecting against negative publicity, and enhancing customer identification. Three main channels are identified: reputation effects, immunization effects, and sustainable development effects. While considerable research supports CSR's positive effects on CSP generally, the specific impact during a pandemic such as COVID-19, particularly distinguishing between responsive and strategic CSR, remains unclear. This research gap motivates the current study, which distinguishes between responsive and strategic CSR, analyzing their respective roles in mitigating pandemic-related risks. Previous work often focuses on overall CSR without such a distinction, lacking analysis of distinct CSR categories and their impacts on CSP during different phases of a major crisis.

This study employs daily data from four sources: COVID-19 case counts from the National Health Commission, stock prices and corporate characteristics from the CSMAR database, corporate donations data from the China Association of Public Companies, and CSR ratings from the RKS database. The sample includes A-share listed companies in China (excluding financial firms) during the 2020 lockdown period (February 3rd to April 10th). The dataset was cleaned, and variables were winsorized at 1% to handle outliers. Regression analysis, using OLS with robust standard errors clustered at the firm level, was conducted to test the hypotheses. The main regression models are specified as follows: WkRtn% = a + a₁ LogCovid19, + a₂CSR + a3CSR × LogCovid19, + Σm=1k Xm,i,pre2020 + βj,t + εjt Rtn_recovery; = a + a₁LogCovid19, + a₂CSR + βCSR × LogCovid19, + Σm=1k Xm,i,pre2020 + βj,t + εit Where WkRtn% represents the adjusted weekly stock return, RtnRecovery represents the weekly stock return recovery, LogCOVID19 represents the log of newly confirmed COVID-19 cases, CSR incorporates measures of overall CSR, strategic CSR, and responsive CSR, Xm,i,pre2020 represents firm-level control variables, and βj,t accounts for industry and time fixed effects. Weekly stock return and weekly stock return recovery are calculated using adjusted weekly stock returns, accounting for market returns. Strategic CSR is measured by whether a firm disclosed CSR reports pre-pandemic, responsive CSR by whether a firm made donations during the pandemic, and overall CSR combines these two. Control variables include firm age, size, leverage, ROA, cash holding, market-to-book ratio, growth rate, and ownership structure (SOE). The study further conducts heterogeneity analysis by dividing firms into subgroups based on ownership (SOE vs. non-SOE), financial leverage (high vs. low), and firm size (large vs. small).

The empirical results reveal a significant negative impact of the COVID-19 outbreak on both weekly stock returns (WkRtn%) and stock return recovery (RtnRecovery%). However, CSR significantly mitigates these negative effects. Specifically, responsive CSR demonstrates a significant short-term moderating effect on stock returns, while strategic CSR displays a significant long-term moderating effect on stock return recovery. Heterogeneity analysis reveals that the moderating effects of CSR are more pronounced among non-state-owned enterprises, firms with lower financial leverage, and large companies. In the short-term analysis, responsive CSR (measured by donations during the pandemic) significantly mitigates the negative impact of COVID-19 on WkRtn%. Conversely, strategic CSR (measured by pre-pandemic CSR reports) does not show a significant short-term effect. The long-term analysis, using stock return recovery, reveals the opposite: strategic CSR exhibits a significant positive moderating effect on RtnRecovery%, while responsive CSR's impact is not significant. Sub-sample analyses reinforce these findings, showcasing a stronger moderating effect of CSR in non-state-owned firms, lower-leverage firms, and larger firms. The detailed regression results, presented in Tables 4-14, provide strong statistical support for these findings, including the VIF test indicating no multicollinearity problems. The robustness checks using daily data further confirm the main findings.

The findings highlight the importance of tailoring CSR strategies to the specific phase of a crisis. During a sudden negative shock like the COVID-19 pandemic, immediate responsive actions (e.g., donations) can quickly improve stakeholder perception and mitigate short-term negative impacts on stock returns. However, long-term resilience and recovery require a robust foundation of strategic CSR, integrated into the firm's core business strategy. The heterogeneity analysis underscores the context-specific nature of CSR's effectiveness. Non-state-owned firms, often facing greater scrutiny, might benefit more from demonstrating social responsibility. Similarly, lower-leverage firms might be more likely to benefit from CSR initiatives as they might have more resources available. Larger firms, typically subject to greater public visibility, might experience stronger market reactions to their CSR initiatives. These findings provide empirical evidence for the role of CSR as a risk management tool, particularly relevant for addressing major shocks to the global economy.

This study demonstrates that both responsive and strategic CSR play crucial roles in mitigating the negative impact of large-scale crises like the COVID-19 pandemic on CSP, however, their effects manifest differently across time horizons. Responsive CSR provides short-term benefits, while strategic CSR drives long-term recovery. The heterogeneous effects across firm types highlight the need for firms to adopt tailored CSR strategies. Future research should focus on refining measures of strategic and responsive CSR, investigating the long-term impact of different CSR activities, and examining the influence of other factors such as industry and government policies on the CSR-CSP relationship.

This study uses donations during the pandemic as a proxy for responsive CSR and pre-pandemic CSR disclosure as a proxy for strategic CSR which might not fully capture the complexity of these concepts. The study's focus is on the Chinese market and may not be fully generalizable to other contexts. Future studies could investigate other dimensions of CSR and incorporate a broader range of contextual factors.