Corporate Social Responsibility, Ownership Structure, and Firm Value: Evidence from Korea

Abstract

This study examines the relationship between corporate social responsibility (CSR) and firm value in the context of ownership structure. Specifically, our study explores whether large shareholder and foreign shareholder ownership play an important role in the CSR-firm value relationship. Using a sample of 48 firms listed on the Korea Stock Exchange (KSE) between 2010 and 2014, we find that CSR is positively associated with firm value. We further find that the relationship between CSR and firm value is weaker in firms with high large shareholder ownership than in firms with low large shareholder ownership. However, we find no evidence of the effect of foreign ownership on the relationship between CSR and firm value. This study sheds light on the importance of ownership structure in the relationship between CSR and firm value, suggesting significant implications for academics, practitioners, and policymakers. We contribute to the existing literature by providing empirical evidence on the effect of ownership structure on the CSR-firm value relationship. Policymakers may consider these results in implementing their policies that can enhance CSR activities.

Do Higher-Rated or Enhancing ESG of Firms Enhance Their Long–Term Sustainability? Evidence from Market Returns in Korea

“…or by reducing asymmetric information between firms and stakeholders [3]. Nevertheless, the results of empirical studies are not consistent with such expectations [2,4].…”

“…In the recent era of worsening unethical capitalism and increasing uncertainty, the importance of corporate social responsibility (CSR) has been emphasized [1,2]. CSR is closely related to long-term sustainability of firms, which is generally measured by firm values or long-term market returns [2]. For Singaporean firms, Loh et al [3] report that sustainability is positively related to a firm's market value.…”

“…Many firms have recognized that engaging in CSR activities is crucial to achieve a sustainable market performance and growth [1,2]. It should be noted that firms' efforts to survive and prosper for a long time in a non-friendly environment are reflected in their market value [2]. Thus, it is more or less rational to expect that CSR will have a positive effect on firm value in the long run by satisfying a variety of stakeholders, such as employees, customers, lenders, governments, etc.…”

“…Firms' efforts to improve the external environment positively for long-term sustainability may not be optimal although their benefits may dominate corresponding costs [1,2,5]. Furthermore, the positive investors' responses are not guaranteed in the environment with information asymmetry between insiders and outsiders [1,2,6].…”

“…Among previous studies on ESG ratings, there is no study that connects short-term and long-term abnormal returns. Second, this study uses risk-adjusted market returns using CAPM (Capital Asset Pricing Model), the three-factor model of Fama and French, and the four-factor model of Carhart, rather than Tobin Q to measure investor responses used in prior studies like Kim et al [2]. Third, this study, by investigating the association between each element of ESG evaluations and abnormal returns, diagnoses the investors' responses to the ESG ratings using long-term abnormal returns for each one-year period up to five years after the disclosure of ESG rating, applying event study methodology, whereas extant literature mostly focus on short-term effects.…”