Is CSR Really Profitable? Evidence From Korea

Abstract

We empirically investigate whether corporate social responsibility (CSR) INTRODUCTIONhis paper examines whether corporate social responsibility (CSR) is really profitable in Korea. Specifically, we investigate whether the relationship between CSR and corporate financial performance (CFP) is affected by potential measurement problem of CSR scores measured by KEJI (Korea Economic Justice Institute) index in Korea setting. During the last four decades, stakeholders such as customers, employees, suppliers, and community groups have been asking firms to undertake CSR activities (McWilliams & Siegel, 2000). Some firms have proactively made an effort to meet these demands by investing more resources to CSR activities. Other firms have resisted insisting that investments on CSR activities do not benefit them to accomplish their goal to maximize profits.Reflecting these concerns in the business, researchers have primarily explored whether the relationship between CSR and CFP exists. However, they have not reached agreement on the definite relationship between two variables in international setting (Cochran & Wood, 1984;Akpinar et al., 2008;Hull & Rothenberg, 2008;Aguinis & Glavas, 2012) as well as Korea setting (J.-S. Choi et al., 2010;Heo & Chung, 2010;Jang & Choi, 2010;Na & Hong, 2011). Despite the inconsistent results, in Korea setting, the majority of studies to date report the positive relationship between CSR and CFP. Copyright by author(s); CC-BY 2168The Clute Institute Does CSR really contribute to enhancing firm value or increasing operating income in Korea setting? Is there no measurement problem in CSR score? If it exists, does the positive relationship maintain when adjusted CSR score is used? Waddock and Graves (1997) suggest CSR measurement problem is related to mixed results on the relationship between CSR and CFP. In Korea setting, prior studies have been widely employing KEJI CSR score to measure the level of a firm's CSR activities (e.g. Black et al., 2006;J.-S. Choi et al., 2010;Heo & Chung, 2010;Oh et al., 2011;B. B. Choi et al., 2013;H. Choi & Moon, 2013).We suspect that prior studies that report positive relationship between CSR and CFP using KEJI index is biased upward due to potential measurement problem of KEJI index that includes operating performance component. Then, our research question is "Does KEJI index have the measurement problem to proxy for the level of CSR activities in explaining the CSR-CFP relation? If yes, does the measurement problem significantly affect the positive relationship between CSR and CFP reported in prior studies? Given the strong impact of CSR score on CFP, it is meaningful to assess the measurement problem of KEJI CSR score. However, little study to date has addressed the KEJI index measurement problem in Korea setting. Moreover, C. H. Kim et al. (2013Kim et al. ( , p. 2588) point out that Korean firms' CSR activities tend to be a short term version with public relations focus because CSR in Korea is driven by government and societal regulative and norma...

An Economic Analysis of Corporate Social Responsibility in Korea

“…Many previous studies in Korea have compared CSR with firms' financial performance. The study [39] used the "1992 KEJI" to examine the relationship between CSR and financial performance, but their results differ from those of more recent studies, in that they find no close association between CSR and financial performance. This finding is supported by the literature [40], based on a sample for the period 1992 to 1995.…”

“…Importantly, the study [39] shows that the CSR-firm value nexus is largely influenced by the ownership structure of a firm, based on the Korean market. In addition, the Korean market is an especially interesting setting in which to study CSR, because it is dominated by chaebols.…”

“…In South Korea, research on CSR is divided into two general categories: theoretical normative research on CSR, and positive research. The former includes historical studies on CSR in South Korea [19,39], policies and routine CSR activities in South Korea [40][41][42], a comparison between US and South Korean CSR [43], and the future of CSR research [44].…”

“…The study [34,38] report that a firm's size predicts CSR, because a larger firm is more likely to be subjected to external pressure. The literature [39] suggests that financial slack also affects CSR activities. Then, to understand the extent to which the industry works in the market, two other industrial categorizations are used to compare industries: (a) Service/Nonmanufacturing with manufacturing; and (b) Industrial goods and consumption items.…”

Social and Environmental Sustainability: An Empirical Analysis of Supply Chain Profitability and the Recession

“…For example, Stanwick and Stanwick (1998) used a level of profitability (Cowen et al, 1987), Surroca et al (2010) used Tobin's q, and some researchers used a mixed indicator (Ghosh and Wu, 2007). In our research, we use the return on assets (ROA), obtained from Standard & Poor's Compustat and is defined as the ratio of earnings before interest and taxes (EBIT) to the firms book value of total assets (Choi et al, 2010, Cho. 2015, and Ding et al 2018.…”