This paper investigates the cross-country determinants of the resilience effects of corporate social capital.
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Returns to social capital are widely heterogeneous across countries.
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Returns to social capital are the highest in countries with strictly regulated labor markets.
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Corporate social capital hedge firms against systemic shocks by mitigating employees- related litigation and syndication risk.
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.
