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Article

Corporate Sustainability in the Wake of the COVID-19 Global Pandemic: Does CSR Enhance Corporate Survival during a Market Crisis?

by
Jangsoon Kim
1,
Donseung Choi
2,
Eunho Cho
3,
Collins E. Okafor
3 and
Byung Il Park
4,*
1
KU-KIST Graduate School of Converging Science and Technology, Korea University, Seoul 02841, Korea
2
Department of International Trade, Andong National University, Andong 36729, Korea
3
Department of Accounting and Finance, North Carolina A&T State University, Greensboro, NC 27411, USA
4
College of Business, Hankuk University of Foreign Studies, Seoul 02450, Korea
*
Author to whom correspondence should be addressed.
Sustainability 2022, 14(21), 14438; https://doi.org/10.3390/su142114438
Submission received: 12 September 2022 / Revised: 26 October 2022 / Accepted: 27 October 2022 / Published: 3 November 2022
Review Reports Versions Notes

Abstract

:
This study investigates the effect of the COVID-19 global pandemic on the relationship between corporate social responsibility (CSR) and a firm’s sustainability. Prior studies on related topics empirically argue that CSR activities are highly likely to positively impact corporate sustainability. If this is true, firms that engage in CSR activities should demonstrate a higher degree of sustainability than their counterparts during the recent COVID-19 global pandemic. Using a sample of 390 Korean listed companies from 2019 to 2020, we find that CSR has no significant relationship with firm value variations as a proxy for sustainability during the COVID-19 global pandemic period. Our findings suggest that firms that engage in more active CSR activities do not appear to mitigate the market risk associated with the COVID-19 global pandemic compared to their counterparts who engage in less active CSR activities. That is, CSR does not provide a significant cushion that alleviates a firm’s market risk exposure, as heralded by COVID-19. Unlike previous studies that argue that CSR has positive effects on sustainability, our studies suggest that CSR’s impact on sustainability seems to be significantly lowered when uncontrollable market risks occur. It is important to note that this study has methodological limitations in that it was analyzed using proxy variables for CSR and sustainability measurement in Korea. For future studies, it would be insightful to expand the CSR concept to ESG and conduct research using longer-term data in the post-pandemic era.

1. Introduction

This study examines whether corporate social responsibility (CSR) activities positively affect sustainability during the COVID-19 global pandemic. Since the 2000s, the emergence of new technology, including smartphones, tablet PCs, and artificial intelligence (AI), has changed the industrial ecosystem and human life on a fundamental level. The growth trend within the corporate enterprise has been progressively advancing with the technological revolution. However, this trend inevitably stalled in 2020 due to the global pandemic arising from COVID-19. On the heels of the pandemic came unprecedented devasting crises that crippled companies and those that were directly or indirectly associated with them. According to data released by the National Institute for Health Research (NIHR) in early 2021, people’s ability to work, family relationships and life, care for dependents, and financial status have all suffered damage in the face of the prolonged pandemic. Expressly, it is noted that firms recorded a 40% economic loss compared to the pre-pandemic times. Such a factor likely led to a decline in consumer purchasing power and has become a long-term issue that will be difficult for companies to overcome in the foreseeable future.
Firms are seeking ways out of the proverbial ditch dug by the effect of the global pandemic. Amid the avalanche of challenges facing firms during these trying times due to external factors, some researchers have found a new direction that could alleviate this financial woe. For example, [1] arguments for the Resource-Based View (RBV) posit that companies must secure unique resources, which competitors cannot imitate, to win the competition. In recent times, the trend has become that companies are increasingly focused on solving the problems in society and the environment rather than focusing on technology that guarantees innovation, which signals to stakeholders that the company is paying attention to sustainability instead of being self-interested so that legitimacy is gained [2]. Such legitimacy allows for communities and stakeholders to give the company a chance to generate ethical assets. It guarantees the company’s insurance-like protection; thus, it is evident that those firms will be granted predominance [3].
A global social and health crisis, such as the current COVID-19 global pandemic, presents a test-lab environment to examine the efficacy of this CSR active firms’ insurance-like protection. Thus, this research sheds light on the relationship between CSR and sustainability during the COVID-19 pandemic. We seek to provide empirical insights into whether CSR is beneficial to a company in terms of sustainability in the post-COVID-19 era. By following prior research by [3] arguing that companies acquire some resources from communities and stakeholders, we will use a resource-based view (RBV) to examine whether CSR activities can positively impact a company’s sustainability. More specifically, the theoretical mechanisms of previous CSR-related studies, including RBV and stakeholder theory, predict that CSR is one of the critical factors contributing to corporate sustainability [4]. Therefore, in the context of the COVID-19 global pandemic, the sustainability of companies more active in CSR can be expected to be higher than that of other companies.
The research data used in this study consist of 780 firm-year observations of Korean-listed firms with CSR scores provided by KEJI (Korea Economic Justice Institute) from 2011 to 2018. We found that CSR has no significant relationship with firm value variations as a proxy for sustainability during the COVID-19 global pandemic. Our findings argue that firms that engage in more active CSR activities do not appear to mitigate the market risk associated with the COVID-19 global pandemic compared to counterparts that engage in less active CSR activities. Our results contrastingly deviate from empirical arguments presented by prior research on similar topics. Numerous possible interpretations can be drawn from this result, but the most likely explanation is that the COVID-19 global pandemic is an uncontrollable crisis that is difficult to overcome with CSR. Therefore, our research contributes to the CSR literature by reporting evidence arguing that CSR does not seem to play a significant role in mitigating market risks such as the COVID-19 global pandemic.
We organize this paper as follows. Following the introduction in Section 1, we provide the literature review and hypothesis development in Section 2. Section 3 explains the research methodology, sample selection, and variables’ measurement. Section 4 and Section 5 report and discuss the empirical results. In Section 6, we conclude.

2. Literature Review and Hypothesis Development

2.1. Does CSR Benefit the Firm More than Non-Investing Stakeholders?

Just a handful of research studies have presented arguments suggesting that CSR activities adversely hurt a firm financial performance. If these studies were in the majority, perhaps interest in research on CSR and firm value would have dwindled rapidly. Ref. [5] initially defined the concept of CSR and [6] categorized CSR as the economic, legal, ethical, and charitable activities carried out by companies. Numerous studies have shown that CSR activities positively affect a company’s performance [7,8,9]. As [10] define, [6], a pioneer of research into CSR, later classified the beneficiaries of economic and charitable activities among the four CSR activities as shareholders and stakeholders in society, respectively, arguing that the beneficiaries will be cordial to companies that carry out responsible activities. Once the relationship between the company and its beneficiaries strengthens, the outcome would positively reflect on the firm performance, including its sales [11]. Pre-COVID-19 global pandemic, most stakeholders acknowledge that CSR activities bring positive results to a company’s finances, as it enhances firm value [12,13,14,15,16,17,18].
Prior studies on CSR have been mainly divided into two trends: (i) a focus on analyzing the factors that affect CSR activities, (ii) a focus on analyzing the effects of CSR activities on companies. Ref. [19] examined factors affecting CSR by explaining how the individual, organization, and country define CSR by instrumental, relation-oriented, and ethical drivers: the three common motivations for CSR activities. Around the same time, Ref. [20] points to institutional conditions, including solid laws and regulations, as one of the critical factors that increase the impact of CSR and argues that normative institutional environments increase the likelihood of a company’s CSR behavior. Meanwhile, there have also been attempts to examine the effect of the background and tendency of a CEO, which makes the final decision, on a company’s CSR, assuming that the company relies on stakeholders in terms of CSR activities [21,22,23,24,25]. In addition, since corporate governance is also part of strategic decision-making, there have been studies on the predisposing factors of CSR in various aspects, including studies that examine what type of corporate governance affects CSR activities [26,27,28,29].
Research analyzing the effect of CSR on companies mainly suggests a positive relationship between the two variables. Such a research trend specifically examines how CSR activities positively affect financial performance by highlighting the mechanism and context behind CSR activities and corporate performance. Ref. [30] argue that CSR activities increase employee loyalty and make a company seem more attractive. More candidates are highly likely to join CSR-promoting companies, widening the candidate pool and thereby increasing the likelihood of securing top talent. Therefore, they argue that, in the end, CSR activities have a positive effect on the performance of the company. According to [31], the stronger the corporate citizenship and organizational commitment the employees have, the more significant the positive impact of CSR activities on the company’s financial performance. Research has also shown that the stronger the authenticity of CSR activities carried out by recognized companies, the greater the effect of CSR activities on corporate performance [32].

2.2. Sustainability for Corporate Survival

ISO 26000 set in motion guiding principles that made standard corporate CSR practices more identifiable [33]. In practice, enterprises can now focus their CSR engagements on seven concrete principles imparted to their immediate environment and beyond. These seven principles are: (1) organizational governance, (2) human rights, (3) labor practices, (4) environment, (5) fair operating practices, (6) consumer issues, and (7) community involvement and development. Based on these seven principles, the goal of CSR activities can be defined as a corporate endeavor geared towards contributing to the sustainability of society’s health and well-being while considering its stakeholders’ expectations [34]. Ref. [33] provides concrete examples of how companies are implementing CSR activities through the best practices of DB Schenker and Raben Group.
Sustainability refers to satisfying current stakeholders’ needs without compromising companies’ ability to satisfy future stakeholders’ needs, including shareholders, employees, consumers, NGOs, and local communities [34,35]. Ref. [36] emphasizes that sustainability is a corporate strategy that increases shareholder value while highlighting external stakeholders’ social and environmental matters. Furthermore, the triple bottom line (TBL), where the concept of sustainability is applied to the enterprise field, emphasizes the benefits of corporate social and environmental activities, including the economic aspects [37,38]. In other words, environmental, social, and financial goals, once individually considered competitive factors, face a turning point, where they could coexist through the concept of sustainability [39].
In the early days, environmental, economic, and social responsibilities were mainly emphasized in sustainability. As firms’ ethical activities, solving corporate moral laxity, are increasingly stressed, the need to include ethical responsibilities as one of the sustainability features has been strongly suggested by [40]. On the other hand, some studies argue that sustainability-seeking companies not only require economic success, contributions to society, and environmental awareness, but should also actively lay the foundation for corporate economic, social, and environmental assets in the political field to achieve their long-term objectives [41]. However, researchers point out that, to achieve economic success, which is the most basic premise of sustainability and a prerequisite for corporate survival, the concept of sustainability needs to be related to corporate management or core business unit strategies instead of being broad, so that companies can secure above-average returns [42].
The theoretical developments enumerated above gave wings to the concept of sustainability. External crises also threaten corporate survival and compel us to look back and reassess the fundamental reasons for corporate existence. In particular, the recent global economic recession caused by COVID-19 somewhat highlights the basis for a company’s natural existence. In terms of economy, sustainability can be referred to as a process in which a company generates profits through economic activities in the market, achieves economic goals using the gains mentioned above, and reproduces its economic profit structure by providing specific social services [43]. Sustainability in economics focuses on the more fundamental corporate goals and is closely related to activities that meet the purpose of the company’s existence. Therefore, companies are primarily responsible for supplying goods and services in the economic system and must provide employment, knowledge, and additional economic benefits through such activities [44]. In the end, economic sustainability includes corporate obligations that are productive, profitable, and meet consumption needs [45].

2.3. Hypothesis Development: CSR and Sustainability from the Resource-Based View

Ref. [46] argues that CSR activities should exist only for the ultimate interests of a company because they are contrary to maximizing corporate interests from the shareholders’ perspective and are wary of the spread of ideal illusions for CSR activities. Ref. [6] argues that companies should define their CSR activities and respond either passively or actively, depending on their situation. However, some skeptical views in prior studies emphasize the normative and moral aspects of holding companies accountable and insist on the ideal concepts of CSR [19,47,48,49,50].
As CSR begins to deal with the practical aspects of the firm, some suggest that firms should include CSR as a new resource. Ref. [51] emphasizes the need for a realistic concept of CSR that highlights its concrete and strategic sides. They argue that companies strategically target their customers through CSR activities and aim for their survival and prosperity. Such a perspective evokes a realistic corporate situation in which more profits are obtained from the relationship between the company and society than the costs they bear [50]. As a company conducts CSR activities, its managers view the company from a long-term perspective. By prioritizing work-related relationships rather than immediate performance, trust and cooperation between the connections is strengthened, yielding a reduction in the agency costs for each job [52]. By reducing costs and generating outcomes, companies can raise capital, offsetting capital constraints [53], which fundamentally blocks any possibility that the relationship between CSR activities and capital constraints may become harmful, thereby securing opportunities to grow [54]. CSR is not only recognized as creating new value and improving the sustainability of the business, but it is also expected to have positive effects on the welfare of the whole society [55]. This is possible as a company’s strategic CSR activities prioritize customer value, which ultimately gladdens the hearts of the customers [47]. In sum, by allowing for a company that argues from a resource-based view to secure the difference and non-motility of its internal resources, its strategic CSR activities will create a sustainable competitive edge [56,57,58,59].
This study examines the relationship between CSR activities and sustainability during a global pandemic. From a financial point of view, CSR activities decrease the likelihood of related risks by securing corporate financial transparency [60] because, through CSR activities, managers gradually focus more on the moral aspects of their company, strengthening the transparency of the information that the company provides to the shareholders and stakeholders [47]. Secured transparency reduces the possibility of information asymmetry between the company and investors. This prevents companies from recklessly engaging in excessive risk-taking, resulting in a virtuous cycle that exposes shareholders to needless risks. Therefore, besides protecting a firm’s financial solvency, CSR activities could have other practical risk-reducing effects on firms’ operations.
CSR activities can also play a role in strengthening a firm’s internal resources in terms of non-financial aspects. Ref. [3] argues that when a company considers its relationships with its business-related stakeholders as intangible assets to yield outcomes, its CSR activities can serve as insurance for this asset, reducing the risks it may face. Ref. [61] emphasize that CSR activities can reduce the risk of available capital reduction via stock issuance due to external factors.
Drawing from the summary of previous studies on this topic, we propose the following hypothesis: companies actively carrying out CSR activities strengthen their internal resources and positively affect sustainability, even during crises such as the COVID-19 pandemic.
Hypothesis. 
CSR activities will positively affect sustainability during the COVID-19 global pandemic.

3. Research Methodology

3.1. Research Regression Equation

To explore the effect of COVID-19 on the relationship between CSR and sustainability, we use a difference-in-difference (DID) regression model to examine whether the firms with higher CSR scores enhance sustainability more than those with lower CSR scores. Table 1 shows definition of variables in the regression equation. Specifically, following [62], we employ the following regression equation:
TOBINQi.t = α0 + α1 CSR_DUMMYi,t + α2 2020_DUMMYi,t
+ α3 CSR_DUMMY×2020_DUMMY + α4 SIZEi,t + α5 LEVERAGEi,t
+ α6 GROWTHi,t + α7 ROAi,t + α8 R&D_INTENSITYi,t + α9 AD_INTENSITYi,t
+ α10 FOREIGN_SHi,t + α11 GOVERNANCE + ∑IND + εi,t

3.2. Data and Sample Selection

Following prior studies [63,64,65,66,67], we employed the KEJI CSR scores as a proxy of the firm’s CSR activities. The KEJI institution has provided CSR scores for Korean-listed firms to the public since 1990. The measurement methods and data descriptions are similar to the KLD ratings widely used in U.S.-settings CSR research [67]. We collected the data for the other variables from Kisvalue, a commonly accepted and utilized financial data in Korean settings. We began with 1888 company-year observations of Kisvalue annual financial data from 2019 and 2020. We concluded that the final selection comprises 780 firm-year observations for listed Korean companies from 2019 to 2020 as shown in Table 2.

3.3. Measurement of the Variables

We employed Tobin’s Q to measure sustainability because it is a widely accepted and used proxy for a firm’s financial performance [62,66,68] and firms’ growth through investment opportunities [69,70]. We used Tobin’s Q, which is a financial metric that is frequently employed in finance, strategy, and accounting studies as a long-term financial performance evaluation [17,71] because its measurement contains a stock price that reflects the future cash flows the firms can generate, potential growth opportunities they have in the future, and the risks the firms can face. Following the literature, we measure Tobin’s Q by the sum of the market value of common, book value of the preferred stock, and total liabilities, then divided by the book value of total assets at each fiscal year-end.
Using Tobin’s Q as a proxy for sustainability has several advantages. First, Tobin’s Q can better capture the effect of a firm’s CSR activities. Tobin’s Q measures a firm’s long-term financial performance and is a forward-looking metric [71]. CSR activities also seem to provide more benefits to the firm by enhancing its brand image and reputation in the long run [67]. Secondly, most accounting measures of profitability, such as return on asset (ROA), are generally short-term performance measures [71]. Lastly, Tobin’s Q mitigates any possible distortion effects from companies’ reporting incentives and accounting selections on the firm’s financial performance evaluation because it uses market-based performance measures [70].
The KEJI CSR scores capture the firm’s CSR engagements for each year using six KEJI CSR score sections: (1) soundness, (2) fairness, (3) community contribution, (4) customer satisfaction, (5) environment protection, and (6) employee satisfaction [72]. We measure the CSR variable as the sum of individual scores of the community contribution, customer satisfaction, environment protection, and employee satisfaction because a firm’s activity for corporate governance is not regarded as a CSR activity [63,73], and the two sections, soundness, and fairness, are closely associated with governance assessment.
In the regression equation, we use control variables that can impact the dependent variable, TOBINQ. First, we employ firm size (SIZE) in our model following prior studies [17,62,74,75]. Second, financial leverage (LEVERAGE) is included because it invariably affects a firm’s financial performance [17,62,76]. If a firm’s capital structure is sound, the tax deductions that benefit from the interest expenses can improve a firm’s financial performance. Third, we use a firm’s growth rate (GROWTH) since it positively affects the financial performance and stock price of firms. Fourth, we include return on assets (ROA) because a company’s profitability is positively associated with market performance measures [62,74,77]. Fifth, we use R&D_INTENSITY and AD_INTENSITY, previously employed in the previous CSR research [78,79]. Sixth, the foreign shareholders’ investment percentage (FOREIGN_SH) is included because foreign investors seem to positively affect the relationship between CSR and sustainability, improving the firm’s financial performance [67]. Seventh, the governance measure (GOVERNANCE) is included, where the firm with a sound governance system is positively associated with sustainability, enhancing the firm value [80,81]. Lastly, we include industry indicator variables for the two-digit Korea Standard Industry Classification (SIC) codes [17,82] to control for the influence that each industry can have on sustainability. All continuous variables except the CSR score are winsorized at the upper and lower one percentage to mitigate the concerns caused by outliers.

4. Empirical Results

4.1. Descriptive Statistics

In Table 3, we show the sample data distributions and average KEJI CSR scores on the two-digit SIC industry code basis. Regarding sample distribution, the most heavily represented industry is the manufacture of general paints and similar products (11.8%, SIC code C20). The average CSR scores are between 29.4 and 32.9 across all industries.
In Panel A of Table 4, we report the descriptive statistics of the selected variables. The average values of the control variables, LEVERAGE and ROA, are, respectively, 0.453 and 0.034, implying that the sample companies appear to have a sound capital structure and profitability (the median, 25 percentile, and 75 percentile of LEVERAGE and ROA are 0.459, 0.293, 0.609 and 0.033, 0.01, 0.057, respectively).
Table 4 shows that GROWTH, ROA, R&D_INTENSITY, AD_INTENSITY, FOREIGN_SH, and GOVERNANCE are significantly and positively correlated with TOBINQ (0.115, 0.237, 0.380, 0.221, 0.136, and 0.201, p < 0.01, respectively), as expected. We check whether the correlation coefficients among the independent variables are greater than 0.5, and we cannot find values greater than 0.5. Moreover, we investigate the multicollinearity problem of the independent variables in our regression models using variation inflation factors (VIF) and found no significant multicollinearity problem in the sample.

4.2. Regression Analysis Results

Table 5 presents the results of the difference-in-difference (DID) regression analyses. The dependent variable is TOBINQ. The interest independent variable is CSR_DUMMYX2020_DUMMY, which investigates whether the firms with better CSR activities (group of higher 50% CSR score firms) enhance the firm value better than the firms with poorer CSR activities (group of lower 50% CSR score firms) under COVID-19 pandemic environment. The results of Model 1 in Table 3 show that the coefficient of CSR_DUMMYX2020_DUMMY is not significant (−0.033, t = −0.47), which suggests that there is no difference between the group of high CSR score firms and the group of low CSR score firms in the relationship between CSR and TOBINQ under COVID-19 environment, which does not support our hypothesis. In sum, our findings support the argument that better CSR activities are more likely not to contribute to enhancing sustainability in the COVID-19 environment.
In Table 6, we show the empirical results from the analysis of the individual components of CSR instead of the total CSR score as the dependent variable. In Table 6, Models 1, 2, 3, and 4 show all coefficients of COMMUNITY×2020_DUMMY, CUSTOMER×2020_DUMMY, ENVIRON×2020_DUMMY, and EMPLOYEE×2020_DUMMY which are not significant. The results support the robustness of our findings.

4.3. Additional Analysis Using Quarterly and Semiannual Sample Data

For an additional robustness test, we ran the multivariate regression using different data. Specifically, we used quarterly and semiannual data to obtain different periods instead of annual data in 2019 and 2020. Table 7, Model 1 through Model 5 show that all coefficients of CSR_DUMMYX2020_DUMMY are not significant, which is consistent with the results reported in Table 3, which uses annual data.

4.4. Alternative Measures of CSR Scores

In Table 3, we report our findings using the average CSR scores from 2011 to 2018 to secure a bigger sample size. However, the different measurements of CSR scores may generate different results. Thus, we tested the robustness of our results using additional measures of CSR scores using quarterly and semiannual data.
We dissected and analyzed the data in the following way. First, we selected the firms with a continuously higher CSR score each year, from 2016 to 2018. Second, we calculated the average CSR score for three years. Lastly, we ran the regression using this average CSR score as an independent variable. Table 8, Model 1 reports the results of the regression analysis. The coefficient of CSR_DUMMYX2020_DUMMY is not significant (−0.079 (t = −0.64)), which is consistent with our findings in Table 5.
Additionally, we performed the robustness test of the findings using another measure of CSR score, the latest CSR scores from 2018, which represent a firm’s CSR activities in recent years. Table 8, Model 2 presents that the coefficient of CSR_DUMMYX2020_DUMMY is also not significant (0.011 (t = 0.12)), which supports the results in Table 5.

4.5. Additional Analysis using a Specific Industry Significantly Impacted by COVID-19

COVID-19 severely curtailed productivity in the tourism industry, as governments worldwide have heavily controlled people’s movement. Tourists are worried they could be infected with COVID-19. For these reasons, we can assume that manufacturers that make passenger motor vehicles related to tourism have also been adversely affected. We performed a regression analysis using data from a specific industry expected to be significantly affected by COVID-19. In Table 9, we reported whether companies that actively engage in CSR activities in the manufacturing industry of passenger motor vehicles attained improved firm value during this period. Our analysis reveals that corporate CSR activities did not materially improve corporate value during this period. These results also support the results reported in Table 3.

5. Discussion

Does engagement in CSR activities foster corporate survival during a period of systemic economic crisis? This study empirically investigates this question. According to RBV theory, since CSR is more likely to positively affect corporate sustainability, companies with a high level of CSR activities will be less likely to lose their value during the global pandemic caused by COVID-19.
Given the above results, we provide a rationale to interpret our empirical findings: an insignificant relationship between CSR and sustainability during global pandemics. We drew insights from the relationship between CSR and risks in the theoretical context of prior studies [3,21,47,53]. In other words, the results of this study are inconsistent with the results of previous studies on similar topics [54,56,57,58,59,63,65] and are contrary to the expected results. Previous studies on the related topic document that CSR burnishes the public image of the firm, which ultimately enhances firm performance. These studies mainly suggest that CSR activities can reduce risks by resolving information asymmetry or strengthening business ethics.
The findings of this study question the efficacy of CSR’s ability to improve corporate sustainability during times of global pandemic. However, we do not entirely discard the value of CSR to corporate sustainability, especially given that several prior studies have presented empirical results supporting CSR’s positive effects. Thus, we suggest that the findings of this study stem from external risks beyond the corporate’s control and the limitations of the insurance-like mechanism.
It can be said that the causes of risks are very diverse, ranging from internal to external factors, which are difficult for the company to control. However, the type of risks described in most prior studies arguing that CSR activities can reduce risks is idiosyncratic risks. In other words, most studies that have examined the positive relationship between CSR corporate performance focused on diversifiable/unsystematic risks rather than systematic/market risks. Our studies investigate the association between CSR engagements and systematic risk, specifically those pertaining to the efficacy, if any, of these CSR activities in mitigating market risk and improving firms’ risk management strategies. The COVID-19 global pandemic is a market risk beyond individual companies’ control. In the context of a global pandemic, it will be rather difficult for a mechanism to positively impact sustainability through corporate CSR activities.

6. Conclusions

This study examines the relationship between CSR and sustainability. Specifically, we reviewed prior studies on the relationship between CSR and sustainability, including corporate performance. We also investigated whether the corporate value generated through the Firm’s CSR activities was significantly adversely impacted during the COVID-19 global pandemic for the listed companies in Korea. The empirical result of the three steps of this study can be summarized as follows.
First, there is no difference between the group of high CSR score firms and the group of low CSR score firms in the relationship between CSR and sustainability under the global pandemic. Second, we disaggregated the CSR score and performed the analysis using the individual components of CSR. This showed that all the CSR components did not affect corporate sustainability. Third, these results remained unchanged when we used quarterly and semiannual data samples and alternative CSR measurements. This three-step result is indifferent to the argument from the prior studies that suggested that CSR activities will create a sustainable competitive edge [56,57,58,59]. Consequently, our hypothesis that CSR positively impacts corporate sustainability during the COVID-19 pandemic is not supported.
As discussed above, in conclusion, since the COVID-19 global pandemic is a sort of market risk, it is difficult for the central theoretical framework of prior studies to hold in this instance. Thus, the results of this study suggest that, unlike earlier studies that show that CSR has positive effects on sustainability, the positive impact of CSR on sustainability seems to be significantly lowered when uncontrollable market risks occur. Suppose the crisis stems from external environmental factors that are difficult to control, not internal risks. In that case, enterprises should respond strategically to environmental changes such as open innovation rather than emphasizing passive responsibilities to achieve sustainability [83,84,85,86,87]. Ref. [88] proposes new car-sharing business models by attempting an open innovation that combines data-sharing with the existing car-sharing model in response to changes in the market. This model can be referred to as an excellent example of open innovation. The findings in this study are significant in that they suggest that a predictable relationship between CSR and sustainability may not be established in the event of a crisis beyond a company’s control. Companies should be realistic about their expectations regarding the effectiveness of CSR in enhancing sustainability. CSR is more like a strategic means of improving sustainability through appropriate combinations with other strategic alternatives.
Despite these implications, we acknowledge the limitations of this study. First, we have a measurement limitation of KEJI. Although KEJI is widely used as an indicator to measure CSR activities in Korea, it cannot objectively represent the absolute level of firms’ CSR. As KEJI is not a complete indicator of CSR, it would be difficult to reach the conclusion that CSR has no impact on sustainability under a market crisis. Second, future studies need to consider the conceptual limitations of CSR activity. Creating shared value (CSV) and Environment, Social, Governance (ESG), which have been actively discussed more recently, are concepts that have emerged to overcome the limitations of CSR. CSR has limitations as an abstract concept, as it cannot provide value creation or a concrete code of conduct. The firm also has responsibilities as a member of society. By considering these intrinsic limitations of CSR measurement, we can argue that CSR does not positively impact sustainability.
When the post-pandemic era arrives, we will use newly available data to investigate if the relationship between CSR and sustainability is significant. It is also important to note that, in this research expedition, we were able to generate new research ideas that would further expand the scope of discussion into ESG as we seek to overcome the limitations of the concept and measurement of CSR.

Author Contributions

Conceptualization, D.C. and E.C.; methodology, J.K.; software, E.C.; validation, C.E.O., D.C. and E.C.; formal analysis, E.C. and J.K.; investigation, J.K.; resources, E.C.; data curation, E.C.; writing—original draft preparation, J.K.; writing—review and editing, B.I.P. and C.E.O.; visualization, E.C.; supervision, B.I.P.; project administration, B.I.P. All authors have read and agreed to the published version of the manuscript.

Funding

This research received no external funding.

Institutional Review Board Statement

Not applicable.

Informed Consent Statement

Not applicable.

Conflicts of Interest

The authors declare no conflict of interest.

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Table
Table 1. Definition of variables.
Table 1. Definition of variables.
VariableDefinition
Dependent variables
TOBINQ=a proxy of sustainability by measuring (market value of common stock+ book value of the preferred stock)/book value of total assets at the end of the fiscal year in period t, respectively;
Interest variables
2020_DUMMY=equals 1 if the fiscal year is 2020; 0 if the fiscal year is 2019;
CSR_DUMMY=equals 1 if the average score of summed scores of individual components of community contribution, customer satisfaction, environment protection, and employee satisfaction in the Korea Economic Justice Institute (KEJI) index from 2011 to 2018 (we usd KEJI CSR scores from the fiscal year of 2011 because KEJI substantially changed the KEJI index measurement method in the fiscal year of 2011) is in the upper 50%, and 0 otherwise;
Control variables
SIZE=natural log of total assets at the fiscal year-end;
LEVERAGE=total liability divided by total assets at the fiscal year-end;
GROWTH=total assets at fiscal year-end divided by total assets at prior fiscal year-end and then minus one;
ROA=operating income divided by total assets at the fiscal year-end;
R&D_INTENSITY=R&D expenses divided by net sales at the fiscal year-end;
AD_INTENSITY=advertisement costs divided by net sales at the fiscal year-end;
FOREIGN_SH=foreign shareholders’ investment percentage in common and preferred stocks in the company at the fiscal year-end;
GOVERNANCE=average score of summed scores for soundness and fairness components in KEJI index from 2011 to 2018;
IND=industry dummy on the SIC two-digit code classification basis.
Table
Table 2. Sample selection process.
Table 2. Sample selection process.
DescriptionTotal Number of Observations
Data available in the Kisvalue database from 2019 annual and 2020 annual1888
Less:
Financial firms356
Nonmatching observations after merging with CSR average scores variable546
Firms with missing values for the variables used in the regression model167
Firms that the fiscal year-end month is not December20
Firms that are not showing in both years (2019 and 2020) continuously19
Final sample (firm-year observations)780
Final number of unique firms390
Table
Table 3. CSR scores and industry distribution.
Table 3. CSR scores and industry distribution.
CodeIndustryFrequency%CSR Score
A03Ocean Fishing60.8%29.9
C10Milling of Cereals283.6%31.5
C11Manufacture of Blended and Distilled Sojoo81.0%32.5
C12Manufacture of Tobacco Products20.3%32.3
C13Cotton of Spinning20.3%31.3
C14Manufacture of Underwear and Night Clothes202.6%30.6
C15Processing of Raw Hides and Tanning and Dressing of Leather60.8%31.6
C16Manufacture of Veneer Sheets, Plywoods and Similar Laminated Layer Boards60.8%31.4
C17Manufacture of Newsprint162.1%32.6
C19Manufacture of Lubricating Oils and Greases60.8%32.6
C20Manufacture of General Paints and Similar Products9211.8%31.9
C21Manufacture of Finished Medicaments546.9%31.3
C22Manufacture of Tires and Tubes324.1%31.2
C23Manufacture of Structural Refractory Ceramic Products283.6%31.3
C24Manufacture of Smelting, Refining and Alloys of Non-ferrous Metals526.7%31.6
C25Manufacture of Metal Cans and Shipping Containers81.0%31.0
C26Manufacture of Line Telecommunication Apparatuses445.6%31.3
C27Manufacture of Electrical Measuring, Testing and Analysis Instruments81.0%32.8
C28Manufacture of Other Insulated Wire and Cable162.1%32.5
C29Manufacture of Agricultural and Forestry Machinery344.4%31.0
C30Manufacture of Passenger Motor Vehicles587.4%31.0
C31Manufacture of Motorcycles81.0%32.9
C32Manufacture of Wood Furniture for Kitchen and Restaurant60.8%30.5
C33Manufacture of Pianos20.3%32.3
D35Manufacture of Gas, Distribution of Gaseous Fuel Through Mains141.8%32.3
F41General Construction141.8%32.0
F42Installation of Machinery Equipment for Building60.8%31.6
G45Sale of Other Motor Vehicle New Parts and Accessories20.3%30.1
G46Wholesale of Non-Specialized Goods344.4%30.6
G47Other Retail Sale in Non-specialized stores182.3%31.5
H49Freight Trucking121.5%30.2
H50Oceangoing Foreign Freight Transport60.8%31.3
H52Other Supporting Transport Services81.0%31.3
I56Cafeterias20.3%32.8
J58Online and Mobile Game Software Development and Supply121.5%30.0
J59Motion Picture Exhibition20.3%30.7
J60Over-the-Air Broadcasting60.8%31.5
J61Telecommunications Resellers40.5%32.4
J62Computer System Integration Consultancy and Establishment Services40.5%32.5
J63Portals and Other Internet Information Media Service Activities40.5%29.8
M71Non-Financial Holding Companies709.0%31.5
M72Civil Engineering Services60.8%31.5
N75Security and Guard Services60.8%31.2
P85Correspondence Education schools20.3%29.4
R91Other Sports Services40.5%31.4
S96All Other Personal Service Activities20.3%29.5
Total780100%
Table
Table 4. Descriptive statistics.
Table 4. Descriptive statistics.
Panel A. Descriptive Statistics of Selective Variables
VariablenMeanMedianStd. Dev.25 Percentile75 Percentile
TOBINQ7801.0580.8820.6120.7311.187
CSR_DUMMY7800.5031.0000.5000.0001.000
2020_DUMMY7800.5000.5000.5000.0001.000
SIZE78027.63027.4041.50826.51728.546
LEVERAGE7800.4530.4590.1950.2930.609
GROWTH7800.0610.0360.214−0.0120.094
ROA7800.0340.0330.0500.0100.057
R&D_INTENSITY7800.0120.0020.0230.0000.013
AD_INTENSITY7800.0100.0010.0190.0000.011
FOREIGN_SH78012.5517.21513.8752.80017.148
GOVERNANCE78032.64232.5531.42631.82833.538
Panel B. Correlation coefficients among selective variables (N = 780)
12345
1TOBINQ1.000
2CSR_DUMMY0.0001.000
32020_DUMMY0.091 *0.0001.000
4SIZE−0.0660.313 **0.0091.000
5LEVERAGE0.0210.080*0.0010.200 **1.000
6GROWTH0.115 **0.029−0.092 **0.078 *0.086 *
7ROA0.237 **0.157 **−0.0570.142 **−0.226 **
8R&D_INTENSITY0.380 **0.0490.0120.013−0.138 **
9AD_INTENSITY0.221 **0.009−0.0020.086 *−0.125 **
10FOREIGN_SH0.136 **0.083 *−0.0490.467 **−0.155 **
11GOVERNANCE0.201 **−0.086 *0.0000.064−0.186 **
678910
6GROWTH1.000
7ROA0.197 **1.000
8R&D_INTENSITY0.0520.0421.000
9AD_INTENSITY0.0370.0510.337 **1.000
10FOREIGN_SH0.0200.210 **0.0530.185 **1.000
11GOVERNANCE0.0540.098 **0.336 **0.241 **0.198 **
Pearson correlation coefficients are reported with * and ** which represent statistical significance levels at 5% and 1%, respectively, on a two-tailed test. Table 1 shows definitions of variables.
Table
Table 5. Regression analysis of CSR, firm value, and COVID-19.
Table 5. Regression analysis of CSR, firm value, and COVID-19.
Dependent Variable: TOBINQ
Model 1Model 2
Independent VariablesPredicted SignCoefficient
(t-Statistics)
CSR_DUMMY −0.018−0.001
(−0.44)(−0.03)
2020_DUMMY 0.153 ***
(2.91)
CSR_DUMMYX2020_DUMMY −0.033
(−0.47)
SIZE?−0.083 ***−0.086 ***
(−5.69)(−5.95)
LEVERAGE+0.751 ***0.760 ***
(6.60)(6.79)
GROWTH+−0.0260.007
(−0.24)(0.07)
ROA+3.050 ***3.127 ***
(4.81)(4.99)
R&D_INTENSITY+7.597 ***7.563 ***
(4.51)(4.55)
AD_INTENSITY+1.4031.390
(0.83)(0.83)
FOREIGN_SH+0.006 ***0.007 ***
(2.99)(3.22)
GOVERNANCE+0.020 *0.020 *
(1.81)(1.77)
CONSTANT 1.868 ***1.894 ***
(3.71)(3.76)
Industry fixed effect YesYes
VIF average 3.423.41
Adj. R2 0.360.38
F 86.66 ***11.67 ***
n 780780
*, **, and *** mean statistical significance levels at 10%, 5%, and 1% on a two-tailed test. We use robust standard errors to adjust for heteroskedasticity at both the firm and year levels. Table 1 shows definitions of variables.
Table
Table 6. Regression analysis of individual components of CSR, firm value, and COVID-19.
Table 6. Regression analysis of individual components of CSR, firm value, and COVID-19.
Dependent Variable: TOBINQ
Model 1Model 2Model 3Model 4
Independent VariablesPredicted SignCoefficient
(t-Statistics)
COMMUNITY 0.044
(0.99)
COMMUNITY×2020_DUMMY −0.036
(−0.51)
CUSTOMER −0.042
(−0.96)
CUSTOMER×2020_DUMMY −0.050
(−0.73)
ENVIRON −0.039
(−0.88)
ENVIRON×2020_DUMMY −0.071
(−1.04)
EMPLOYEE −0.030
(−0.68)
EMPLOYEE×2020_DUMMY 0.020
(0.28)
2020_DUMMY 0.154 ***0.161 ***0.171 ***0.126 **
(3.07)(2.86)(2.99)(2.39)
SIZE?−0.090 ***−0.087 ***−0.080 ***−0.088 ***
(−6.25)(−6.09)(−5.43)(−6.13)
LEVERAGE+0.752 ***0.735 ***0.751 ***0.758 ***
(6.73)(6.46)(6.75)(6.83)
GROWTH+−0.0010.014−0.0010.006
(−0.01)(0.13)(−0.01)(0.06)
ROA+3.091 ***3.149 ***3.133 ***3.103 ***
(4.93)(5.04)(5.02)(4.94)
R&D_INTENSITY+7.532 ***7.609 ***7.703 ***7.544 ***
(4.58)(4.65)(4.67)(4.59)
AD_INTENSITY+1.3231.1531.2861.411
(0.79)(0.69)(0.75)(0.84)
FOREIGN_SH+0.006 ***0.006 ***0.006 ***0.006 ***
(3.18)(3.14)(3.20)(3.16)
GOVERNANCE+0.022*0.0180.021 *0.020 *
(1.93)(1.60)(1.88)(1.74)
CONSTANT 1.900 ***2.021 ***1.701 ***1.958 ***
(3.78)(4.02)(3.30)(3.86)
Industry fixed effect IncludedIncludedIncludedIncluded
VIF average 3.433.413.413.42
Adj. R2 0.380.380.380.38
F 11.34 ***10.95 ***11.29 ***11.38 ***
n 780780780780
*, **, and *** show statistical significance levels of 10%, 5%, and 1% on a two-tailed test. We use robust standard errors to adjust for heteroskedasticity at both the firm and year levels. Variable definitions: COMMUNITY = community contribution; CUSTOMER = customer satisfaction; ENVIRON = environment protection; and EMPLOYEE = employee satisfaction. Table 1 shows definitions of other variables.
Table
Table 7. Regression analysis of CSR, firm value, and COVID-19 using quarterly and semiannual data.
Table 7. Regression analysis of CSR, firm value, and COVID-19 using quarterly and semiannual data.
Dependent Variable: TOBINQ
Quarter:1Q2Q3Q4Q Semiannual
Model 1Model 2Model 3Model 4Model 5
Independent VariablesPredicted SignCoefficient
(t-Statistics)
CSR_DUMMY 0.026−0.011−0.0070.029−0.015
(0.48)(−0.21)(−0.14)(0.61)(−0.27)
2020_DUMMY −0.129 ***−0.0060.0880.146 ***−0.006
(−2.77)(−0.11)(1.49)(2.63)(−0.11)
CSR_DUMMYX2020_DUMMY −0.024−0.031−0.025−0.041−0.032
(−0.39)(−0.43)(−0.35)(−0.56)(−0.44)
SIZE?−0.075 ***−0.085 ***−0.080 ***−0.079 ***−0.085 ***
(−5.63)(−5.54)(−5.75)(−5.55)(−5.54)
LEVERAGE+0.745 ***0.714 ***0.581 ***0.665 ***0.741 ***
(7.62)(7.03)(5.04)(5.87)(7.23)
GROWTH+0.1050.0890.1790.2170.070
(0.92)(0.58)(1.05)(1.35)(0.46)
ROA+9.145 ***8.369 ***9.579 ***6.634 ***4.950 ***
(4.64)(4.08)(4.55)(4.41)(4.11)
R&D_INTENSITY+5.308 ***6.945 ***5.558 ***5.781 ***7.523 ***
(3.40)(3.54)(2.92)(4.05)(3.72)
AD_INTENSITY+3.825 **1.9612.3270.9402.663
(1.97)(0.94)(1.21)(0.73)(1.27)
FOREIGN_SH+0.006 ***0.007 ***0.006 ***0.007 ***0.007 ***
(3.38)(3.35)(3.06)(3.39)(3.29)
GOVERNANCE+0.023 **0.0180.022 *0.031 **0.019
(2.08)(1.56)(1.93)(2.55)(1.56)
CONSTANT 1.607 ***2.039 ***1.793 ***1.454 ***2.005 ***
(3.42)(3.49)(3.68)(2.85)(3.39)
Industry fixed effect IncludedIncludedIncludedIncludedIncluded
VIF average 3.323.353.333.363.35
Adj. R2 0.390.340.310.340.35
F 21.61 ***20.33 ***19.44 ***15.21 ***51.98 ***
n 750774768762774
*, **, and *** show statistical significance levels of 10%, 5%, and 1%, respectively, on a two-tailed test. We use robust standard errors to adjust for heteroskedasticity at both the firm and year levels. Each quarter sample measures three-month performance in Income Statement, respectively. Semiannual sample measures six-month performance. Table 1 shows definitions of variables.
Table
Table 8. Regression analysis of CSR, firm value, and COVID-19 using alternative CSR scores.
Table 8. Regression analysis of CSR, firm value, and COVID-19 using alternative CSR scores.
Dependent Variable: TOBINQ
Model 1Model 2
Independent VariablesPredicted SignCoefficient
(t-Statistics)
CSR_DUMMY 0.1660.015
(1.61)(0.21)
2020_DUMMY 0.212 **0.162 **
(2.33)(2.36)
CSR_DUMMYX2020_DUMMY −0.0790.011
(−0.64)(0.12)
SIZE?−0.058−0.052 *
(−1.15)(−1.80)
LEVERAGE+0.816 ***0.756 ***
(3.29)(4.79)
GROWTH+−0.0020.196
(−0.01)(0.58)
ROA+5.813 ***4.955 ***
(5.39)(5.74)
R&D_INTENSITY+9.345 ***7.447 ***
(3.83)(3.98)
AD_INTENSITY+−2.1954.871 **
(−0.64)(2.27)
FOREIGN_SH+−0.0070.001
(−0.92)(0.41)
GOVERNANCE+0.063 *0.046 *
(1.74)(1.93)
CONSTANT −0.1290.106
(−0.06)(0.09)
Industry fixed effect IncludedIncluded
VIF average 2.721.82
Adj. R2 0.730.56
F 11.68 ***10.61 ***
n 92276
*, **, and *** show statistical significance levels of 10%, 5%, and 1%, respectively, on a two-tailed test. We use robust standard errors to adjust for heteroskedasticity at both the firm and year levels. Table 1 shows definitions of variables.
Table
Table 9. Regression analysis of CSR, firm value, and COVID19 using an industry (Industry: Manufacture of passenger motor vehicles (Code: C30)).
Table 9. Regression analysis of CSR, firm value, and COVID19 using an industry (Industry: Manufacture of passenger motor vehicles (Code: C30)).
Dependent Variable: TOBINQ
Model 1Model 2
Independent VariablesPredicted SignCoefficient
(t-Statistics)
CSR_DUMMY −0.0150.020
(−0.51)(0.51)
2020_DUMMY 0.082 **
(2.07)
CSR_DUMMYX2020_DUMMY −0.066
(−1.29)
SIZE?0.026 *0.024
(1.74)(1.64)
LEVERAGE+0.693 ***0.700 ***
(6.11)(6.09)
GROWTH+−0.221−0.180
(−1.01)(−0.68)
ROA+0.6570.762
(1.09)(1.23)
R&D_INTENSITY+3.1793.013
(1.49)(1.38)
AD_INTENSITY+−5.670 *−5.757 *
(−1.78)(−1.88)
FOREIGN_SH+0.0020.002 *
(1.57)(1.91)
GOVERNANCE+0.0160.017
(0.90)(1.01)
CONSTANT −0.848−0.884
(−1.03)(−1.15)
VIF average 1.992.08
Adj. R2 0.560.59
F 8.198.62
n 5858
*, **, and *** mean statistical significance levels at 10%, 5%, and 1% on a two-tailed test. We use robust standard errors to adjust for heteroskedasticity at both the firm and year levels. Table 1 shows definitions of variables.
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Kim, J.; Choi, D.; Cho, E.; Okafor, C.E.; Park, B.I. Corporate Sustainability in the Wake of the COVID-19 Global Pandemic: Does CSR Enhance Corporate Survival during a Market Crisis? Sustainability 2022, 14, 14438. https://doi.org/10.3390/su142114438

AMA Style

Kim J, Choi D, Cho E, Okafor CE, Park BI. Corporate Sustainability in the Wake of the COVID-19 Global Pandemic: Does CSR Enhance Corporate Survival during a Market Crisis? Sustainability. 2022; 14(21):14438. https://doi.org/10.3390/su142114438

Chicago/Turabian Style

Kim, Jangsoon, Donseung Choi, Eunho Cho, Collins E. Okafor, and Byung Il Park. 2022. "Corporate Sustainability in the Wake of the COVID-19 Global Pandemic: Does CSR Enhance Corporate Survival during a Market Crisis?" Sustainability 14, no. 21: 14438. https://doi.org/10.3390/su142114438

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