Cost Behavior of Environmental Protection and Social Contribution Activities: Korean Evidence

Abstract

In this study, we focus on the corporate social responsibility (CSR) management of Korean firms and examine whether their CSR costs (particularly environmental protection and social contribution costs) are properly and effectively managed. Results of the study suggest that the disclosure of environmental capital and social contribution spending does not appear to be a function of quantitative materiality, on average and across time. It is also shown that environmental conservation costs (ECC) and social contribution costs (SCC) demonstrate symmetric behavior while R&D costs show asymmetric behavior, which implies that when sales are decreasing, ECC and SCC decrease proportionately but R&D costs decrease less than the percentage of sales decrease. SCC is stickier for firms that have a share of foreign investment, which implies that foreign investors require management to increase or maintain SCC. CSR activities measured with ECC, SCC, and R&D costs do not change as the ownership of major shareholders changes. Finally, no difference has been found between environmentally sensitive industries and non-sensitive industries in terms of the cost behavior of environmental conservation and social contribution activities.