The Effect of Social Ties between Outside and Inside Directors on the Association between Corporate Social Responsibility and Firm Value

Abstract

The purpose of this paper is to examine the association between activities related to corporate social responsibility (C81SR) and firm value, and whether social ties between outside and inside directors within the board (social ties) affect this association. We analyzed a sample of non-financial firms with fiscal year-end in December listed in the Korea Stock Exchange market for the period of 2012–2017, measuring the intensity of social ties based on region and school relations using the concept of density from social network theory. Using environment, social, and governance (ESG) scores from the Korea Corporate Governance Service to measure CSR activities, we find that, on average, firms can increase their value through CSR activities in Korea. In addition, in firms with strong social ties, the positive association between CSR activities and firm value is attenuated, indicating that boards with strong social ties are ineffective in monitoring CSR activities. Although the government has made great efforts to improve corporate governance with a focus on independence of outside directors, the results of our analysis indicate that there is room for firms to improve board independence substantively in a society where nepotism is widespread.

An Analysis of Corporate Social Responsibility and Firm Performance with Moderating Effects of CEO Power and Ownership Structure: A Case Study of the Manufacturing Sector of Pakistan

“…Model 5 presents an LNTA coefficient of −2.179 at the 10% level, which is significant and insignificant, and model 6 presents an LNTA coefficient of −0.002, which is insignificant. This is because firm size may vary with different moderators, as supported by [60,61,166]. According to agency theory, asymmetric information might be associated with firm size.…”

“…Our firm size results vary, and this is not unexpected because negative or insignificant results show that smaller firms have more growth opportunity than bigger firms. This is because firm size and FP have a true relationship that can be curvilinear [60,61,161,166]. Significance levels: *** p < 0.01, ** p < 0.05, * p < 0.1.…”

“…Model 3 presents an LNTA coefficient of −0.192254, which is insignificant, and model 4 presents an LNTA coefficient of 0.037, also insignificant. Firm size most of the time is negative and insignificant, while examining moderating effects as supported by [60,61,166], mostly CEOs are family members, and this can lead to firm size being negative and insignificant [169].…”

“…Model 7 presents an LNTA coefficient of −1.733, which is insignificant, and Model 8 presents an LNTA coefficient of 0.289, which is insignificant. This is because firm size varies with the moderator, as supported by [60,61,166]. Large firms may be likely to have a low level of ownership concentration, which could lead to a negative relationship between ownership and firm size [174].…”

CSR and Firm Value: Evidence from China

“…Chinese enterprises have gradually attached great importance to corporate social responsibility, and began to instill it into the practice of strategic decision-making [3]. Hence, the sustainability of these countries needs to be further studied [3,18,21].…”