The global COVID crisis provides a test case for the argument that public companies, by making significant and credible commitments to their stakeholder relationships, signal their resilience to investors and, by so doing, cushion their market values against a general collapse. As one example, by limiting layoffs, providing flexible work schedules, and offering paid sick leave, companies are likely to maintain higher employee productivity and avoid costs associated with excessive employee turnover. And companies that adapt their supply chains quickly to avoid costly production halts and secure the supply of important materials should have stronger relationships that result in both higher quality and lower long-run costs. Yet another possibility is that companies that temporarily redirect operations to provide needed products and services such as masks and ventilators could experience stronger customer and brand loyalty.
Using multiple databases, regressions, matched sample analysis, and measures of media sentiment about particular companies, the authors report that companies exhibiting behavior perceived as strengthening their human capital and supply chain relationships, as well as a willingness to repurpose operations, experienced significantly less negative returns during the crisis. On the basis of this evidence, the authors conclude that a company’s response towards its stakeholders can be important in preserving value, and propose that managements view their stakeholder investments as creating strategic resources, intangible assets whose value becomes most apparent during crises.