Abstract
To promote corporate social responsibility (CSR) in emerging markets such as South Korea to the level of developed nations, support from capital market investors is necessary. That is, CSR activities expand if capital market investors actively invest in companies that pursue such activities. This study thus analyzes the influence of the level of CSR activities on the post-earnings-announcement drift (PEAD) of publicly listed companies in South Korea, given the need to analyze the relationship between capital markets and CSR, which is part of sustainability management strategies. A sample of Korean firms listed on the Korean Stock Exchange from 2014 to 2018 was used for the regression analysis. The financial and stock return data were extracted from the KIS-Value database and CSR activities data were collected from the Korea Economic Justice Institute (KEJI) Index. The empirical analysis determined that more inactive companies in terms of CSR exhibited greater PEAD magnitude. Furthermore, high information asymmetry was found to further increase the magnitude of PEAD. These results indicate that investors cannot make swift investment decisions because of their low confidence in the information disclosed by inactive CSR companies; as a result, earnings information is slowly reflected in the stock prices of the period following disclosure. These findings suggest that CSR plays an important role in boosting investor confidence in corporate earnings information.
Highlights
Companies perceived corporate social responsibility (CSR) as philanthropy
Given the need to analyze the relationship between capital markets and CSR, which is part of sustainability management strategies, this study investigates how the CSR level influences post-earningsannouncement drift (PEAD) among publicly listed companies in South Korea
Focusing on CSR, which influences the transparency of corporate information and capital market investors’ confidence in such information, this study investigates whether the firms that are more inactive in terms of CSR show a larger PEAD magnitude
Summary
Companies perceived corporate social responsibility (CSR) as philanthropy. Capital market investors are interested in the social responsibility of companies and tend to invest more in those actively involved in CSR. Since the International Organization for Standardization (ISO) developed and published its international standards and guidelines on social responsibility in 2010 [1], companies have been required to disclose information on their CSR activities more transparently. If a firm’s CSR can build the investors’ confidence in the disclosed earnings information and lead investors to evaluate its information transparency more highly, investors will make faster investment decisions and earnings information will be instantly reflected in the stock price, thereby reducing the PEAD. Given the need to analyze the relationship between capital markets and CSR, which is part of sustainability management strategies, this study investigates how the CSR level influences PEAD among publicly listed companies in South Korea.
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