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The value of CSR during the COVID-19 crisis: Evidence from Chinese firms

Using a sample of 3013 Chinese listed firms, we study the impact of Chinese firms' corporate social responsibility (CSR) engagement on their stock returns during the COVID-19 crisis. We find that firms with more pre-crisis CSR engagement have worse crisis-period stock returns. The effect is larger for firms with more agency problems, less access to external financing, or worse pre-crisis financial conditions. Firms with more pre-crisis CSR engagement also show poorer post-crisis operating performance. Our results suggest that agency problems motivate Chinese managers to overinvest in costly CSR practices, which harms firm value during the unexpected crisis and impedes the firm's recovery from it.


Introduction
Though corporate social responsibility (CSR) practices are conducted worldwide, the question of whether they enhance or harm firm value is still intensely debated (Buchanan et al., 2018). The stakeholder theory claims that CSR performance enhances the firm's reputation and social capital and, in turn, increases firm value. That is, the firm can do well by doing good. In contrast, the agency theory suggests that managers intentionally overinvest in CSR for their own interest at the cost of shareholder wealth, resulting in a decrease in firm value. However, empirical studies reach mixed results on the relationship between CSR and firm value. 1 Recent studies take the global financial crisis of 2008-2009 and the COVID-19 pandemic as exogenous shocks to the demand for CSR and re-examine the relationship (Lins et al., 2017;Buchanan et al., 2018;Bae et al., 2021;Demers et al., 2021;Garel and Petit-Romec, 2021). Those studies focus on developed markets, and, still, they reach inconclusive results.
In this study, we investigate the relationship between CSR and firm value during times of crisis by testing the impact of CSR on Chinese firms' stock returns during the COVID-19 crisis in China, the world's largest emerging market. The Chinese stock market is ideal for re-examining the relationship because it differs from developed markets in the institutional environment, culture, and CSR awareness. CSR practices in China are still preliminary (Wang and Li, 2016) and are commonly affected by political factors (Chang et al., 2021;Yu and Chi, 2021). Institutional ownership of Chinese firms is small, and retail investors' demand for CSR remains weak (Broadstock et al., 2021). Also, Chinese firms face severe agency problems due to their concentrated and state-dominated ownership (Jiang and Kim, 2020) and opaque information environments (Piotroski et al., 2015). These features suggest that the driven source of 2. Literature review and hypothesis development

CSR and firm value
Two theories, i.e., the stakeholder theory and the agency theory, are widely employed in the literature to explain how CSR is related to firm value, and they offer opposite views. The stakeholder theory states that CSR performance helps maximize long-term shareholder wealth by "doing well by doing good." Specifically, CSR performance mitigates information asymmetry and, therefore, firm risk (Cho et al., 2013;Harjoto and Laksmana, 2018). Due to their lower risk, high CSR firms exhibit lower capital costs (El Ghoul et al., 2011;Goss and Roberts, 2011) and larger product differentiation, which rewards firms with higher profit margins (Albuquerque et al., 2019). Consumers are also likely to transform a good CSR record into a positive corporate evaluation, product association, and purchase intention (Servaes and Tamayo, 2013). Also, CSR may enhance firm value by offering insurance-like effects on stock prices during negative events (Lins et al., 2017;Shiu and Yang, 2017).
Meanwhile, the agency theory suggests that firms' CSR engagement is motivated by managers' self-interested behaviors, which are caused by agency problems and decrease firm value (Tirole, 2001). For example, Benabou and Tirole (2010) document that corporations often donate to charities or institutions that their top management favors. Cespa and Cestone (2007) state that engaging in CSR activities is an effective entrenchment strategy for inefficient CEOs to keep them from being replaced. Barnea and Rubin (2010) argue that firm insiders seek to overinvest in CSR to improve their own reputations as good global citizens. In addition, several studies show that firms heavily monitored by internal or external governance mechanisms exhibit low CSR performance (Cheng et al., 2020;Masulis and Reza, 2015;Kruger, 2015;Adhikari, 2016), implying that CSR is at least partly due to agency problems.

Impact of CSR on firm value during times of crisis
The mixed empirical results highlight the challenge of identifying the causal impact of CSR on firm value. One reason for this challenge is the endogeneity issue between firms' CSR performance and financial performance. A positive relationship may suggest that firms can do well by doing good. However, the alternative interpretation of the relationship is that they do good when they do well (Lys et al., 2015). For this reason, recent studies employ the global financial crisis of 2008-2009 and the ongoing COVID-19 pandemic as exogenous shocks to CSR demands and re-examine the relation between CSR and firm value. The stakeholder theory claims that CSR helps build firm-specific social capital and trust. If so, it is more likely to pay off during crisis periods when trustworthiness is more valuable (Lins et al., 2017). Meanwhile, the agency theory suggests that managers overinvest in CSR for their own interests (Kruger, 2015), which is exceptionally costly during crisis periods and damages firm value (Buchanan et al., 2018).
Still, existing studies reach inconclusive results on the impact of CSR on firm value during times of crisis. Lins et al. (2017) document that American firms with better CSR performance had higher stock returns during the 2008-2009 financial crisis. In contrast, Buchanan et al. (2018) find that high CSR American firms have higher firm values before the financial crisis but experience more loss in firm value during the crisis. Ding et al. (2021) use data across 61 economies and find that the drop in stock returns during the COVID-19 pandemic is milder for firms with more CSR activities. Bose et al. (2021) reach similar conclusions using data from 47 countries. However, Bae et al. (2021) document an insignificant relationship between American firms' CSR performance and their stock returns during the COVID-19 stock market crash. Studies on topics related to CSR, such as environmental, social, and governance (ESG), also reach mixed results. Garel and Petit-Romec (2021) claim that U.S.-listed firms with responsible strategies on environmental issues exhibit better stock returns during the COVID-19 market crash. On the contrary, Demers et al. (2021) conclude that ESG does not impact stock returns on U.S. firms during the COVID crisis. Similarly, Takahashi and Yamada (2021) find an insignificant impact of ESG on Japanese firms.

Hypothesis development
This study intends to offer additional evidence on the inconclusive impact of CSR on firm value during times of crisis. Specifically, we focus on the question of how CSR is related to stock returns on Chinese firms during the COVID-19 pandemic. Existing studies on the relationship between CSR performance and firm value in China reach mixed results as they do in other markets. Accordingly, they offer unclear implications on the answer to the question and motivate our study.
On the one hand, the CSR awareness of the Chinese public is still weak, and CSR practices are not common for Chinese firms compared to their peers in developed countries (Yin and Zhang, 2012). According to a survey reported in the China Sustainable Investment Review 2020, 42% of respondents claim that they have never heard about "green investment," "social responsibility investment," or "ESG." 4 Also, there is rich literature showing that the CSR engagement for both state-owned and non-state-owned Chinese firms is largely driven by managers' political motivations rather than stakeholder welfare or shareholder wealth (Guo et al., 2018;Chang et al., 2021;Yu and Chi, 2021;Zhang et al., 2021;Zhou et al., 2021). That is, it is likely to be caused by agency problems and be detrimental to firm value.
On the other hand, there is empirical evidence supporting a positive relationship between CSR and firm value for Chinese firms. For example, Tian et al. (2011) find that Chinese consumers value CSR performance and show greater purchase intention on the products of firms with better CSR records. Wang and Li (2016) document significantly positive market reactions to the CSR reports disclosed by Chinese firms, implying that investors offer valuation premiums for CSR initiators. Additionally, Gong et al. (2018) find that Chinese firms associated with higher CSR disclosure quality exhibit lower debt costs.
Two studies explore the role of CSR or ESG in determining stock returns on Chinese firms during times of crisis. Again, they reach inconsistent conclusions. Zhang et al. (2020) find that Chinese firms' CSR performance does not enhance their stock returns during the 2015 Chinese stock market crash. Broadstock et al. (2021) conduct event studies and find that Chinese firms with higher ESG ratings experience better stock returns during the [− 5,5] window around the Wuhan lockdown. 5 In summary, existing studies offer inconclusive implications on the relationship between Chinese firms' CSR performance and their stock returns during the COVID-19 crisis. Accordingly, we propose a pair of competing hypotheses as follows: Hypothesis H1a. Chinese firms with higher CSR engagement are associated with higher stock returns during the COVID-19 crisis.
Hypothesis H1b. Chinese firms with higher CSR engagement are associated with lower stock returns during the COVID-19 crisis.

Sample
To construct our sample, we begin with all firms listed on the Shanghai Stock Exchange (SSE) or the Shenzhen Stock Exchange (SZSE) in China. We then exclude financial firms and firms specially treated due to their delisting risk. In Section 4.2.4, we define 2019 as the pre-crisis period and compare the impact of CSR performance on stock returns during the pre-crisis and crisis period. For the consideration of this, we exclude firms that are listed later than January 1, 2018. After excluding firms with missing data on CSR engagement and control variables, our final sample for the crisis period consists of 3013 firms. We obtain stock return data and accounting data from the China Stock Market & Accounting Research Database (CSMAR). To reduce the effect of outliers, we winsorize all continuous variables at the 1st and 99th percentiles.

Baseline model
Following Lins et al. (2017) and Bae et al. (2021), we estimate the following model to investigate the impact of CSR performance on stock returns during the COVID-19 crisis in China: where R i,crisis is the stock return on firm i during the crisis period defined as January 23 to March 31, 2020. On January 23, 2020, the China authority officially announced the lockdown of Wuhan, where the COVID-19 was first identified. Shortly after that, most provinces of China entered into "lockdown" due to the widely spread of the COVID-19 cases. COVID-19 fastly spread to the whole world as well. On March 11, 2020, the World Health Organization (WHO) classified COVID-19 as a global pandemic. Since then, lockdown policies have been globally adopted and triggered enormous price movements in major stock markets (Ding et al., 2021). Influenced by these factors, the Chinese stock markets started to show a sign of crashing in mid-March 2020. As discussed later in Section 3.3, the stock prices of more than 75% of our sample firms declined from January 23 to March 31, 2020. More specifically, the stock prices of one-half of these firms declined by more than 11% during the period. These figures confirm that it is reasonable to define the period as the crisis period for the Chinese stock market.
Similar to the studies of Lins et al. (2017) and Bae et al. (2021), we measure the firm's crisis-period stock return as both its raw return (RawRet i,crisis ) and market model-adjusted cumulative abnormal return (CAR i,crisis ). To calculate CAR i,crisis , we estimate the market model using daily firm and market returns over the previous 240 trading days ending in 10 trading days before the lockdown of Wuhan. That is, we use the estimation window of [− 240,-11]. The primary independent variable of interest is the firm's CSR performance in 2019 (HX_CSR i,2019 ). Following Xiang et al. (2021), we obtain CSR data from Hexun.com (HX hereafter), a leading internet financial media firm in China that has issued annual CSR scores for Chinese firms since 2010. 6 HX constructs CSR scores with a framework of three layers. The first layer covers five dimensions, including shareholder responsibility, employee responsibility, customer responsibility, environmental responsibility, and social responsibility. The second layer comprises 13 criteria supporting the five dimensions, and the third layer comprises 37 criteria supporting the second one. 7 In Eq. (1), we control for a set of firm characteristics and factor loadings similar to that in Lins et al. (2017). Specifically, we control for the firm's 2019 year-end market capitalization (Ln(MV) i,2019 ), short-term debt (SDebt i,2019 ), long-term debt (LDebt i,2019 ), cash holdings (Cash i,2019 ), profit (Profit i,2019 ), book-to-market ratio (BM i,2019 ), past stock returns (HRet i,2019 ) and idiosyncratic risk (IV i,2019 ). Also, we control for the firm's factor loadings on the Fama-French three-factor model plus the momentum factor. We use monthly returns over 60 months ending in December 2019 to estimate these loadings and denote them as Beta_MKT i,2019 , Beta_SIZE i,2019 , Beta_BM i,2019 , and Beta_MOM i,2019 , respectively. Finally, we include industry fixed effects in Eq. (1). Firms are classified into 18 5 As discussed in the introduction section, our study differs with that of Broadstock et al. (2021) from methodology, sample, and conclusions. 6 http://stockdata.stock.hexun.com/zrbg/Plate.aspx?date=2018-12-31 7 For details, see http://stock.hexun.com/2013/gsshzr/index.html industries based on the industry classification guidance issued by the China Securities Regulatory Commission (CSRC) in 2012.

Summary statistics
We report descriptive statistics for our main variables in Panel A of Table 1. The first row shows that the median and the 75 th percentile of firms' raw stock returns (RawRet i,crisis ) from January 23 to March 31, 2020 are − 0.1120 and − 0.0059, respectively. These figures suggest that more than 75% of sample stocks' prices declined during the period, and one-half of the stocks' prices declined by more than 11%. Similarly, the median of the cumulative abnormal returns during the period (CAR i,crisis ) is − 0.0835. In summary, the distribution of RawRet i,crisis and CAR i,crisis confirm that the Chinese stock market was in crisis during the period. Accordingly, our definition of the crisis period and empirical setting based on the definition is appropriate.
The mean value of firms' 2019 HX CSR scores (HX_CSR i,2019 ) is small (19.4686) relative to the full score of 100, consistent with the notion that CSR in China is still at its beginning stage (Wang and Li, 2016). In Panel B, we sort sample firms into quartiles based on their 2019 HX CSR scores. We then compare the mean values of crisis-period returns and control variables across quartiles. Both raw returns  are the loading on the market premium, the size premium, the book-tomarket premium, and the momentum premium, respectively. The loadings are based on the Fama-French three-factor model plus the momentum factor and are estimated over the previous 60 months ending in December 2019. In Panel B, we sort sample firms into quartiles based on HX_CSR i,2019 , and compare the mean values of main variables across quartiles. *, **, and *** denote the significance level of 10%, 5%, and 1%, respectively.
(RawRet i,crisis ) and cumulative abnormal returns (CAR i,crisis ) decrease monotonically with the CSR quartiles. For example, the mean value of CAR i,crisis for the bottom CSR quartile is 0.0167, and that for the top CSR quartile is − 0.0899. The difference (bottom minus top) is 0.1066 with a t-statistic of 6.43. These results are consistent with Hypothesis H1b, stating that Chinese firms with more CSR engagement are associated with lower stock returns during the COVID-19 crisis. However, the firm characteristics and factor loadings also significantly differ across quartiles. Hence, we rely on the multivariate regressions in the following sections to formally test our hypotheses.

Baseline model regressions
In Table 2, we report our regression results on the baseline model shown in Eq.
(1). We use the firm's raw crisis-period return (RawRet i,crisis ) as the dependent variable in Columns (1) and (3) and use the firm's cumulative abnormal returns (CAR i,crisis ) in Columns (2) and (4). We control for the set of firm characteristics in Columns (3) and (4) and include factor loadings and industry fixed effects in all columns. Robust standard errors are used to infer the significance levels of estimated coefficients.
The coefficients of the firm's 2019 HX CSR score (HX_CSR i,2019 ) are negative with a 1% significance level in all columns of Table 2, implying that Chinese firms' pre-crisis CSR engagement significantly and negatively impacts their crisis-period stock returns. The impact is also of economic significance. The coefficient of HX_CSR i,2019 is − 0.0021 in Column (3) and − 0.0053 in Column (4). These results suggest that a one-standard-deviation increase in HX_CSR i,2019 (7.9594) is associated with a (0.0021 × 7.9594=) 1.67% decrease in crisis-period raw returns and a (0.0053 × 7.9594=) 4.22% decrease in cumulative abnormal returns. The decreases are relatively large given that the mean value of RawRet i,crisis is − 7.39%, and that of CAR i,crisis is − 2.44%.
In summary, Table 2 suggests a significantly negative relationship between Chinese firms' pre-crisis CSR performance and their crisis-period stock returns, consistent with Hypothesis H1b. As discussed in Section 2.3, the agency theory offers possible explanations for the negative relationship. The CSR awareness of the Chinese public is weak (Yin and Zhang, 2012), and Chinese firms face severe agency problems (Jiang and Kim, 2020). Investors may view CSR as a costly investment initiated by managers' self-interest behaviors and generate overinvestment concerns on firms' CSR engagement. The overinvestment is destructive to firm value during the unexpected COVID-19 crisis when financial flexibility is of great value (Fahlenbrach et al., 2021). Considering this, investors react more negatively to Chinese firms with more pre-crisis CSR engagement after the pandemic broke out. The results in Table 2 also coincide with Zhang et al. (2020), which suggests that CSR does not offer insurance-like effects for Chinese firms during the crisis period as it may do for American firms.

Alternative CSR engagement measures
We check the robustness of the negative relationship between Chinese firms' CSR engagement and their crisis-period returns in several ways. First, we check the robustness of the negative relationship by alternatively measuring firms' CSR engagement. In Table 2, we measure firms' CSR engagement as their 2019 CSR scores that range from 0 to 100. In Columns (1) and (2) of Table 3, we divide firms into quartiles based on their 2019 CSR scores and set dummies for the quartiles. Specifically, CSR_Q2 i,2019 , CSR_Q3 i,2019, and CSR_Q4 i,2019 equals 1 if firm i is in the second quartile, the third quartile, or the fourth quartile, respectively. Otherwise, these dummies equal 0. We then use these dummies as CSR measures and re-estimate the baseline model. Using CSR quartile dummies as explanatory variables also helps to investigate whether the negative impact of CSR on crisis-period returns is only due to firms with very high CSR engagement.
Columns (1) and (2) of Table 3 show that firms in higher CSR quartiles are associated with worse crisis-period returns. The coefficient of CSR_Q4 i,2019 is − 0.0370 in Column (1) and − 0.0969 in Column (2). The results show that the difference in raw crisis-period returns between firms in the bottom and top CSR quartiles is − 3.70% and the difference in cumulative abnormal returns is − 0.0969. Additionally, Column (2) suggests that the impact of CSR on cumulative abnormal returns is monotonic. The cumulative abnormal returns decrease by 1.01% when moving from the bottom CSR quartile to the second quartile. A move from the second quartile to the third quartile yields a 3.87% decrease in abnormal returns, and that from the third quartile to the top quartile yields a 4.81% decrease in abnormal returns. These results indicate that investors are most concerned about firms with the highest CSR engagement. Intuitively, those firms are the most likely to overinvest in costly CSR practices and subsequently suffer from poor financial conditions during the unexpected COVID-19 pandemic. Table 2 measures Chinese firms' pre-crisis CSR performance as their 2019 HX CSR scores. HX at least partially relies on firms' disclosed CSR reports to evaluate their CSR performance. Meanwhile, Chinese firms usually disclose these reports along with their annual financial reports from January to April. The COVID-19 pandemic broke out in China in the first quarter of 2020 when firms were about to disclose their 2019 CSR reports. Accordingly, firms anticipating the impact of CSR on firm value during the COVID-19 crisis may selectively report their CSR practices to cater to investors' demand for CSR during the crisis.
Following the ideal of Lins et al. (2017), we measure Chinese firms' pre-crisis CSR performance as their lagged CSR scores (i.e., 2018 CSR scores) to mitigate this concern. Columns (3) to (4) of Table 3 report the baseline model regression results using firms' 2018 HX CSR scores (HX_CSR i,2018 ) as the independent variable. The results are qualitatively similar to those in Table 2 and still suggest that firms with higher pre-crisis CSR performance are associated with significantly lower crisis-period returns. Thus, the findings in Table 2 are robust.

Alternative CSR data source
In Table 2, CSR scores issued by Hexun.com are used to measure the firm's CSR performance. Alternatively, we obtain firms' CSR data from two alternative sources and re-estimate the baseline model in Table 4. First, we use CSR scores issued by the Running and Loving Consulting for Common Welfare Co.Ltd. (RKS). Following the framework of the U.S. social investment rating agency Kinder, Lydenberg, Domini & Co., Inc. (KLD), RKS annually evaluates Chinese firms' CSR practices with more than 70 indicators based on four dimensions. Using these indicators, RKS assigns annual CSR scores to Chinese firms, which are widely employed in existing studies on CSR-related topics in China (Gong et al., 2018;Zhang et al., 2018;Xiang et al., 2021). In Columns (1) Lins et al. (2017) and covers six dimensions: philanthropy, governance, diversity, employee relations, environment, and products. For each dimension, CNRDS uses a set of dummies to indicate firms' CSR strengths. 8 Following Lins et al. (2017), we scale firms' strengths for each dimension by dividing the number of their strengths by the maximum number of strengths possible for that dimension. To construct the final CSR measure, We exclude the governance dimension and the product dimension as Lins et al. (2017) do. In Columns (5) to (8) This table presents  ranges from 0 to 4. Both RKS and CNRDS rely on firms' self-disclosed annual CSR reports to evaluate their CSR practices. Less than 800 Chinese firms disclosed their 2019 CSR reports as the disclosure of such reports is voluntary rather than mandatory for the majority of Chinese firms. Accordingly, less than 800 observations are used in Table 4. Both alternative CSR measures are negatively related to the crisis-period stock returns in all columns of Table 4, and the relationship is statistically significant in most columns. These results provide evidence of the robustness of our finding in Table 2. That is, Chinese firms with more pre-crisis CSR engagement suffer from larger stock price declines during the crisis.

Alternative crisis period
In Table 2, we set January 23 to March 31, 2020 as the COVID-19 crisis period in the Chinese stock market. To further check the robustness of the findings in Table 2, we employ an alternative crisis period in this Section and re-estimate the baseline model. Most provinces of China entered into "lockdown" after January 23, 2020 due to the widely spread of the COVID-19 cases. Thanks to the prompt interventions, new cases decreased rapidly in late February. On March 12, the Joint Prevention and Control Mechanism of the State Council in China stated in a press release that the peak of the pandemic had passed. Based on this statement, we alternatively set January 23 to March 12, 2020 as the crisis period in this Section.  In Columns (1) and (2) Table 2. All variables are defined in detail in the Appendix. Industry fixed effects are included in all regressions. Tstatistics reported in parentheses are based on robust standard errors. *, **, and *** denote the significance level of 10%, 5%, and 1%, respectively.

Table 4
Robustness tests: alternative CSR data sources.
(1) . The full set of control variables and industry fixed effects are included in all columns. T-statistics reported in parentheses are based on robust standard errors. *, **, and *** denote the significance level of 10%, 5%, and 1%, respectively.
Similar to the results in Table 2, the results in Table 5 suggest a significantly negative impact of Chinese firms' pre-crisis CSR performance on their stock returns during the alternative crisis period. Again, these results support that the negative impact found in Table 2 is robust. 9

Excluding industries particularly affected by the COVID-19 pandemic
Following Garel and Petit-Romec (2021), we further check the robustness of our finding in Table 2 by verifying that it is not driven by specific industries particularly affected by the COVID-19 pandemic. Specifically, we re-estimate the baseline model while excluding firms in the transportation, information technology, pharmaceutical, or service industry. Chinese firms in the transportation and service industries severely suffer from the national lockdown during the COVID-19 crisis. In contrast, the information technology industry may benefit from the "working from home" orders, and the pharmaceutical industry may benefit from urgent demands for medical supplies. Table 6 presents the results of our baseline regressions while excluding specific industries. The coefficients of HX_CSR i,2019 are negative with a 1% significance level in all columns. These results show that our finding in Table 2 is not driven by specific industries particularly affected by the COVID-19 crisis. That is, the negative relationship between Chinese firms' pre-crisis CSR engagement and their crisis-period stock returns is robust to the influence of specific industries.

The difference-in-differences approach
Previous sections show that CSR negatively impacts stock returns during the COVID-19 crisis for Chinese firms. We interpret the finding as evidence that Chinese investors view CSR as a costly overinvestment that significantly harms firm value during the crisis period. However, it is possible that the negative impact is not unique to the crisis period and is caused by unobservable risk factors constantly related to CSR. If so, we should observe a negative relationship between Chinese firms' CSR engagement and stock returns in normal periods as well.
Following Lins et al. (2017), we employ a difference-in-differences model to test this possibility. Specifically, we construct a panel of observations for our sample firms starting in 2019 and ending in 2020. We then estimate the following model: where R i,w are the weekly raw or market-model adjusted returns, and the primary variable of interest is the firm's 2019 HX CSR score (HX_CSR i,2019 ). Weekly firm and market returns over the previous 12 months are used to estimate the market model. DCrisis w indicates the crisis period and is a dummy set to 1 for weeks from January 23 to March 31, 2020. DPostCrisis w indicates the post-crisis period and is a dummy set to 1 from April 1 to December 31, 2020. The two dummies split the panel into three subperiods. The pre-crisis period stands for normal periods and is set to be the base period in Eq. (2). The coefficient of HX_CSR i,2019 × DCrisis w implies the marginal impact of CSR during the crisis relative to that during normal periods, while the coefficient of HX_CSR i,2019 × DPostCrisis w indicates whether the impact persists or reverses during the post-crisis period.
The control variables in Eq.
(2) are the firm characteristics and factor loadings used in Table 2. The firm characteristics based on accounting data are updated quarterly. Firms' past returns (HRet), idiosyncratic risk (IV), and factor loadings are calculated with monthly stock returns over the previous 60 months and are updated monthly. Finally, we include firm, week, and industry fixed effects This table presents the regression results on the baseline model while alternatively setting January 23 to March 12, 2020 as the crisis period. The full set of control variables and industry fixed effects are included in all columns. T-statistics reported in parentheses are based on robust standard errors. *, **, and *** denote the significance level of 10%, 5%, and 1%, respectively. This table presents the baseline model regression results for subsamples excluding firms in the transportation industry, the information technology industry, the pharmaceutical industry, or the service industry. RawRet i,crisis and CAR i,crisis are used as the dependent variable in Panels A and B, respectively. The independent variable of main interest is firm i's 2019 Hexun CSR score (HX_CSR i,2019 ). The full set of control variables and industry fixed effects are included in all columns. All variables are defined in detail in the Appendix. T-statistics reported in parentheses are based on robust standard errors. *, **, and *** denote the significance level of 10%, 5%, and 1%, respectively.
in Eq.
(2) to control for time-invariant omitted risk factors. HX_CSR i,2019 does not appear in Eq.
(2) since it is absorbed by the firm fixed effects, and the two dummies are absorbed by the week fixed effects. Table 7 present the results of estimating the panel regression model in Eq. (2). The coefficient of HX_CSR i,2019 × DCrisis w is negative with a 1% significance level in all settings. These results indicate that CSR significantly and negatively impacts crisis-period stock returns after considering its possible impact during normal periods. The sign and significance level of the coefficients of HX_CSR i,2019 × DPostCrisis w are inconsistent across the columns in Table 7. Besides, those coefficients are small in magnitude relative to those of HX_CSR i,2019 × DCrisis w . In summary, Table 7 shows that the negative impact of CSR is unique to the crisis period and does not reverse during the post-crisis period, supporting the robustness of our findings in Table 2. Also, the results imply that the impact is related to firms' intrinsic value rather than caused by investors' temporary panic, suggesting that firms' CSR engagement can be predictive of their resilience in the crisis, which we will discuss in Section 5.3.

The role of agency problems
We find a robust and negative relationship between Chinese firms' pre-crisis CSR engagement and their stock returns during the COVID-19 crisis, consistent with the agency theory. Specifically, the theory states that agency problems motivate managers to overinvest in CSR for their own interests. If so, the overinvestment may deteriorate firms' financial conditions after the COVID-19 pandemic unexpectedly broke out. Since financial flexibility is vital for firms to survive and recover from the pandemic (Fahlenbrach et al., 2021), the pandemic shows larger negative effects on firms with higher pre-crisis CSR engagement. If this argument holds, it should be observed that the negative impact of CSR on crisis-period returns is more pronounced for firms with more agency problems.
We use a subsample approach to test this prediction. Specifically, we split our sample into subsamples based on measures of agency problems. We then estimate our baseline model separately in each subsample and compare the regression coefficients across the subsamples. We measure agency problems from three perspectives: ownership concentration, institutional ownership, and CEO duality. First, typical principal-agency problems between shareholders and managers arise due to the separation of control and ownership. The separation is larger for firms with less concentrated ownership, suggesting that such firms are associated with more agency problems (Fidrmuc et al., 2006). Second, institutional investors are globally important external monitors of public firms. Firms with less institutional ownership are likely to suffer from more agency problems (Aggarwal et al., 2011). Finally, CEOs who also chair the board face less internal monitoring of their rent-seeking or opportunistic behaviors, implying more severe agency conflicts. Table 8 presents the results of testing the role of agency problems. In Panel A, we divide our sample firms into terciles based on their ownership concentration measured at year-end 2019. We measure the ownership concentration as the Herfindahl-Hirschman Index of the share percentages of the firm's top ten shareholders. As shown in Panel A, the negative relationship is more pronounced in the subsample of firms with less ownership concentration. We also formally test the differences in regression coefficients on HX_CSR i,2019 between the top and bottom terciles and report the P-values in brackets. The tests show that the negative impact of CSR on both raw and cumulative abnormal returns is significantly larger for firms in the bottom decile.
In Panel B, we divide our sample firms into terciles based on their institutional ownership measured at year-end 2019. As shown in Columns (1) to (3), the negative impact of CSR on raw stock returns is only statistically significant for firms in the bottom tercile. In Columns (4) to (6) where CAR i,crisis are used as the dependent variable, the coefficient of HX_CSR i,2019 is always significantly negative.

Table 7
Robustness tests: the difference-in-differences approach. (1) (2) (2). Firm i's raw returns (RawRet i,w ) or market-model adjusted returns (CAR i,w ) over week w are used as the dependent variable. Weekly firm and market returns over the previous 12 months are used to estimate the market model. DCrisis w equals1 for the COVID-19 crisis period from January 23 to March 31, 2020 and 0 otherwise. DPostCrisis w equals1for the post-crisis period from April 1 to December 31, 2020, and 0 otherwise. Firm characteristics and factor loadings are identical to those employed in Table 2. Firm characteristics based on accounting data are updated at each quarter-end. HRet, IV, and factor loadings are updated monthly. Firm and week fixedeffects are included in all regressions. Industry fixed effects are included in columns (3) and (4). All variables are defined in detail in the Appendix. Tstatistics reported in parentheses are based on robust standard errors. *, **, and *** denote the significance level of 10%, 5%, and 1%, respectively.
Nevertheless, the coefficient in the bottom tercile is the largest in magnitude. Also, the tests on the differences in coefficients suggest that CSR exhibits significantly larger negative impacts on both raw and abnormal returns for firms with less institutional ownership. In Panel C, we split our sample firms into two subsamples depending on whether their CEOs also chair the board. Although the coefficient of HX_CSR i,2019 is significantly negative in all columns, it is always larger in magnitude for firms of which CEOs also chair the board. For example, the coefficient in Column (3) is − 0.0030, which is about two times that (− 0.0017) in Column (4). Meanwhile, the P-value below (0.093) suggests that the difference is statistically significant.
In summary, Table 8 shows that the negative impact of CSR on crisis-period stock returns is more pronounced for firms with less concentrated ownership or institutional ownership and firms with CEO duality, i.e., firms with more agency problems. Managers of such firms are more likely to overinvest in CSR for their own good and subsequently face unfavorable financial conditions during the unexpected COVID-19 crisis. Anticipating this, the market more negatively reacted to those firms. That is, the negative impact of firms' CSR engagement on their crisis-period returns is larger for those firms. In this table, we divide our sample into subsamples based on firms' ownership concentration, institutional ownership, and CEO duality in Panels A, B, and C, respectively. We then re-estimate the baseline model in Eq. (1) for those subsamples and compare the regression coefficients on HX_CSR i,2019 . CEO duality indicates that the firm's CEO also chairs the board. Institutional ownership is the percentage of shares owned by institutional investors at the end of 2019. Ownership concentration is measured as the Herfindahl-Hirschman Index of the share percentages of the firm's top ten shareholders. The set of control variables is identical to that in Table 2. All variables are defined in detail in the Appendix. Industry fixed effects are included in all regressions. T-statistics reported in parentheses are based on robust standard errors. P-values of the tests on the difference in the regression coefficients on HX_CSR i,2019 are reported in brackets. *, **, and *** denote the significance level of 10%, 5%, and 1%, respectively.

The role of financial conditions
We further test the role of firms' financial conditions on the impact of CSR. If CSR causes stock price declines during the crisis by deteriorating firms' financial conditions, the effect should be more pronounced for firms with less access to external financing during the crisis or worse pre-crisis financial conditions. We consider firms' financing access and financial conditions from three perspectives: state ownership, the sign of net cash flow, and the ratio of net cash flow to capital expenditure. First, the financial system in China is largely state-dominated and favors state-owned enterprises (SOEs). Formal financing, such as bank lending, is significantly less available for non-SOEs than for SOEs (Allen et al., 2005;Wu et al., 2014). Due to less access to external financing, Chinese non-SOEs may face worse financial conditions during the crisis if they overinvest in CSR before the crisis. Second, the firm's cash flow is vital for its survival during an unexpected crisis if it does not access external financing (Huang and Ritter, 2021). Intuitively, firms with negative pre-crisis net cash flow are more likely to suffer from the crisis than those with positive net cash flow. Thus, the CSR engagement may cause larger stock price declines during the crisis for such firms. Finally, capital expenditures are costly and sticky. Firms with more capital expenditures are more challenging to cut spending (Fahlenbrach et al., 2021). Accordingly, firms face worse financial conditions during the crisis if their net cash flow does not cover their capital expenditures, i.e., the ratio of net cash flow to capital expenditure is less than 1. We expect that the CSR engagement of such firms shows a larger impact on their crisis-period stock returns. Table 9 presents the regression results on subsamples divided by the abovementioned proxies. In Panel A, we split firms into SOEs In this table, we divide our sample into subsamples based on variables related to firms' financial conditions. In Panel A, we divide our sample into SOEs and non-SOEs. In Panel B, we divide our sample depending on whether the firm received positive net cash flow in 2019. In Panel C, we divide our sample depending on whether the firm's ratio of net cash flow to capital expenditure is no less than 1 in 2019. We then re-estimate the baseline model in Eq. (1) for those subsamples and compare the regression coefficients on HX_CSR i,2019 . Industry fixed effects are included in all regressions. Control variables are identical to those employed in Table 2. All variables are defined in detail in the Appendix. T-statistics reported in parentheses are based on robust standard errors. P-values of the tests on the difference in the regression coefficients on HX_CSR i,2019 are reported in brackets. *, **, and *** denote the significance level of 10%, 5%, and 1%, respectively. and non-SOEs. The results suggest that the impact of CSR on raw stock returns or cumulative abnormal stock returns is only significantly negative for non-SOEs. The P-values below provide further evidence that the negative impact of CSR on the crisis-period stock returns is larger for the subsample consisting of non-SOEs.
In Panel B, we partition the sample into two subsamples depending on whether the firm received positive net cash flow observed at year-end 2019. While the coefficient of HX_CSR i,2019 is significantly negative in all columns, the tests on the differences in regression coefficients on HX_CSR i,2019 suggest that the negative impact is always significantly larger for firms with negative net cash flow. For example, the coefficient is − 0.0045 for firms with positive net cash flow in Column (3) and is − 0.0084 for firms with negative net cash flow in Column (4). According to the P-value, the difference is statistically significant at the 10% level.
In Panel C, we divide the sample into two parts depending on whether the firm's ratio of net cash flow to capital expenditure is no less than 1. Again, the coefficients of HX_CSR i,2019 are significantly negative in all columns, implying the market-wide negative impact of CSR on crisis-period stock returns. Still, the magnitude of the coefficients is always larger in magnitude for the subsample of firms in which the ratio of net cash flow to capital expenditure is less than 1. The differences in regression coefficients on HX_CSR i,2019 between the two subsamples are also statistically significant. Specifically, the difference is 0.0018 (0.0030) with a significance level of 5% (10%) when using raw (cumulative abnormal) returns as the dependent variable.
To summarize, the CSR engagement causes larger declines in crisis-period stock prices for Chinese firms that are non-SOEs, receive negative net cash flow or have net cash flow smaller than their capital expenditures. Since those firms have less access to external financing or worse pre-crisis financial conditions, the results further support that the costly CSR engagement may decrease crisisperiod stock returns by deteriorating the firm's financial conditions.

Impact of CSR engagement on operating performance
The results of the DID model in Table 7 show that the negative impact of CSR does not reverse during the post-crisis period, implying that the impact is permanent and may be predictive of firms' future performance. This is consistent with our argument that the costly CSR investment harms the firm's financial conditions and then deteriorates firm performance. To formally test this argument, we estimate the following model over the period 2019-2020 and study the impact of the CSR engagement on operating performance: where Per i,q denotes the measures for operating performance. Following the study of Lins et al. (2017), we measure the firm's performance as its profitability (Profit i,q ), gross margin (GMargin i,q ), and return on assets (ROA i,q ). Profit i,q is calculated as operating income divided by assets; GMargin i,q is measured as the difference between sales and cost of goods sold divided by sales, while ROA i,q is net income divided by assets. Crisis q equals 1 for the crisis period, i.e., the first quarter of 2020, and 0 otherwise. Accordingly, Post-Crisis q equals 1 for the post-crisis period from the second to the fourth quarter of 2020 and 0 otherwise. Similar to Lins et al. (2017), we control for the firm's log of total assets (Log(assets) i,q ) in Eq. (3). Additionally, firm and quarter fixed effects are included in Eq. (3) to control for unobservable firm characteristics and the variation in firm performance over time.
As shown in Table 10, the interaction term between HX_CSR i,2019 and the crisis-period dummy is negatively related to Profit i,q , Crisis q equals 1 for the first quarter of 2020 and 0 otherwise. Post-crisis q equals 1 for the second to the fourth quarter of 2020 and 0 otherwise. Log(assets) i,q is the log of total assets. Profit i,q is the ratio of operating income to assets. GMargin i,q is firm i's gross margin calculated as (salescost of goods sold)/sales over quarter q. ROA i,q is firm i's net earnings divided by assets over quarter q. Firm and quarter fixed effects are included in all regressions. T-statistics reported in parentheses are based on standard errors clustered at the firm level. *, **, and *** denote the significance level of 10%, 5%, and 1%, respectively.
GMargin i,q , and ROA i,q with a 5% or higher significance level. These results suggest that Chinese firms with higher pre-crisis CSR engagement exhibit significantly less operating income, lower gross margins, and lower return on assets. The impact of CSR is also of economic significance. A one-standard-deviation increase in HX_CSR i,2019 (7.9594) leads to a 7.9594 × 0.0011 ≅ 0.88% decrease in operating income, a 7.9594 × 0.0016 ≅ 1.27% decrease in gross margin, and a 7.9594 × 0.0015 ≅ 1.19% decrease in ROA. The interaction term between CSR and the post-crisis dummy is significantly and negatively related to Profit i,q and GMargin i,q , and is insignificantly and negatively related to ROA i,q . These results suggest that Chinese firms with more CSR engagement exhibit poorer operating performance during the crisis period, and the effect persists in the post-crisis period. As discussed in previous sections, the costly CSR investment may deteriorate the firm's financial conditions when the COVID-19 pandemic unexpectedly broke out and impede its recovery from the pandemic. Therefore, firms with higher pre-crisis CSR investments exhibit poorer operating performance during the crisis and post-crisis periods. These results explain our previous finding that the negative impact of CSR on crisis-period stock returns does not reverse in the post-crisis period.

Conclusion
Using the COVID-19 pandemic as an exogenous shock to investors' demand for CSR, we study whether CSR enhances or harms the value of Chinese firms during the crisis. We find that Chinese firms with more pre-crisis CSR engagement are associated with lower crisis-period stock returns. Further tests show that the negative impact of CSR on stock returns is more pronounced for firms with more agency problems, less access to external financing, or worse pre-crisis financial conditions. Besides, firms with more pre-crisis CSR engagement exhibits poorer operating performance during both the crisis and the post-crisis period. The agency theory, which states that managers are motivated to overinvest in CSR for their self-interests, offers possible explanations. The overinvestment in CSR may deteriorate firms' financial conditions after the COVID-19 crisis unexpectedly broke out and impede firms' recovery from the crisis. Accordingly, the crisis caused larger stock price declines for firms with more pre-crisis CSR engagement.
Our findings are inconsistent with related studies on developed countries such as America, implying that the driving forces and economic outcomes of CSR practices in emerging markets such as China may significantly differ from those in developed countries. Therefore, we contribute to the intense debate on the relationship between CSR and firm value. Our study also adds to the fast-growing research on the determinants of stock returns during the global COVID-19 pandemic. Specifically, the results in our study suggest that the deterioration of firms' financial conditions caused by their overinvestment in CSR may harm firm value during the pandemic.

Appendix A. Appendix variable definitions
Variable Definition

RawRet i,crisis
The raw stock return on stock i over the COVID-19 crisis period from January 23 to March 31, 2020.

RawRet i,w
The raw stock return on stock i over week w.

CAR i,crisis
The market model-adjusted cumulative abnormal return on stock i over the COVID-19 crisis period from January 23 to March 31, 2020.

CAR i,w
The market model-adjusted cumulative abnormal return on stock i over week w. HX_CSR i, 2019 Firm i's 2019 CSR score issued by Hexun.com.

RKS_CSR i,2019
Firm i's 2019 CSR score issued by Running and Loving Consulting for Common Welfare Co.Ltd. CNRDS_CSR i,2019 Firm i's 2019 CSR score based on the CSR ratings issued by the Chinese Research Data Services (CNRDS).

IV i,2019
The residual variance obtained from the regression of firm i's monthly returns on market returns over 60 months ending in December 2019.

HRet i,2019
The raw stock return on firm i over the previous 12 months ending in December 2019.

Ln(MV) i,2019
The natural logarithm of firm i's market capitalization (in Chinese Yuan) at the end of 2019.

Profit i,2019
Firm i's operating income divided by assets at the end of 2019.

BM i,2019
Firm i's book value divided by its market value at the end of 2019.

SDebt i,2019
Firm i's debt in current liabilities divided by assets at the end of 2019.

LDebt i,2019
Firm i's long-term debt divided by assets at the end of 2019.

Cash i,2019
Firm i's cash and marketable securities divided by assets at the end of 2019.

Beta_MKT i,2019
The loading on the market premium based on the Fama-French three-factor model plus the momentum factor estimated over 60 months ending in December 2019.

Beta_SIZE i,2019
The loading on the size premium based on the Fama-French three-factor model plus the momentum factor estimated over 60 months ending in December 2019. The loading on the book-to-market premium based on the Fama-French three-factor model plus the momentum factor estimated over 60 months ending in December 2019.

Beta_MOM i,2019
The loading on the momentum premium based on the Fama-French three-factor model plus the momentum factor estimated over 60 months ending in December 2019.

CSR_Q2 i,2019
Dummy that equals 1 if firm i is in the second HX_CSR i,2019 quartile and 0 otherwise.

CSR_Q3 i,2019
Dummy that equals 1 if firm i is in the third HX_CSR i,2019 quartile and 0 otherwise.

CSR_Q4 i,2019
Dummy that equals 1 if firm i is in the fourth HX_CSR i,2019 quartile and 0 otherwise.

DCrisis w
Dummy that equals 1 for weeks over the COVID-19 crisis period from January 23 to March 31, 2020 and 0 0therwise.

DPostCrisis w
Dummy that equals 1 for weeks over the COVID-19 post-crisis period from April 1 to December 31, 2020 and 0 0therwise.

Profit i,q
Firm i's operating income divided by assets at the end of quarter q. GMargin i,q Firm i's gross margin calculated as (sales-cost of goods sold)/sales over quarter q. ROA i,q Firm i's net earnings divided by assets over quarter q. Crisisi q Dummy that equals 1 for the first quarter of 2020 and 0 otherwise.

PostCrisis q
Dummy that equals 1 for the second to the fourth quarter of 2020 and 0 otherwise.

Log(assets) i,q
The natural logarithm of firm i's total assets at the end of quarter q.