Abstract
This paper aims to investigate the effects of donation activities of chaebol firms on their firm values. The firm values will vary depending on capital market participants’ view on the donation activities of chaebol firms. To verify this hypothesis, data of firms listed in the Korea Composite Stock Price Index (KOSPI) from 2001 to 2017 are empirically analyzed. Whether a firm is a chaebol firm or not is assessed by whether the firm has been designated as a firm in one of the large business groups announced by the Korea Fair Trade Commission, and firm values are measured by Tobin’s Q and market-to-book value ratio (MTB). The results of analysis indicated that donation activities of chaebol firms were negatively related to firm values. The donation activities of chaebol firms seem to be not positively evaluated in the capital market. This paper is meaningful in that it verified how capital market participants evaluate the donation activities of chaebol firms, which account for a large portion of the South Korean economy. To gain public support, chaebol firms should strive to truly fulfill their social responsibilities.
Highlights
The goal of firms is to maximize their firm values
The purpose of this study was to investigate the relationship between the donation activities of chaebol firms and their firm values
If we accept the level of donations as a factor illustrating sustainability management activities, the following conclusions can be drawn
Summary
The goal of firms is to maximize their firm values. A representative example of important nonfinancial factors that do not appear in financial statements is sustainability management activities of the firm. Chaebol firms, which are a special form of firms existing only in South Korea, make great efforts in sustainability management activities. Samsung BioLogics’ accounting manipulation in favor of corporate succession by Vice Chairman Lee Jae-yong (the son of Lee Kun-hee, head of the Samsung Group, the largest chaebol group in South Korea) of the Samsung Group in the process of the merger between Samsung C & T Corp. Chung Eui-sun (the son of Chung Mong-koo, head of the Hyundai Motor Group, the second largest chaebol group in South Korea) is Vice Chairman of the Hyundai Motor Group and the largest shareholder of Hyundai Glovis.
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