WHERE DOES CORPORATE SOCIAL CAPITAL MATTER THE MOST? EVIDENCE FROM THE COVID-19 CRISIS

Abstract

Firms with high social capital systematically outperform their peers during periods of economic distress. Yet, it is not clear under which institutional conditions corporate social capital is the most valuable to shareholders. By studying the performance of 1,789 firms in 27 countries during the initial phases of the COVID-19 pandemic, we document that the resilience effect of social capital is heterogeneous across countries. We identify the flexibility of a country's labor market as a critical determinant of corporate's returns on social capital-related investments. These findings are consistent with social capital hedging firms against systematic shocks by mitigating employee-related litigation risk.