Abstract
This study investigates the value relevance and market response of corporate social responsibility (CSR) activities from 2001 to 2010. This paper examines whether donation expenditure (proxies for CSR) is significantly related to next year’s earnings and whether Korean investors truly react to the information on CSR activities. The empirical results of this paper indicate that donation expenditure (which proxies for social contribution activities) is significantly associated with firm value and Korean market investors are fully aware of the information content of donation expenditure.
Highlights
A donation is a gift that is voluntarily given for a charitable purpose
The empirical results of this paper indicate that donation expenditure is significantly associated with firm value and Korean market investors are fully aware of the information content of donation expenditure
This paper investigates the value relevance and investors response to donation expenditure from 2001 to 2010 in companies listed on the Korean stock markets
Summary
A donation is a gift that is voluntarily given for a charitable purpose. In firms, donation expenditure usually occurs when a company voluntarily provides assets to someone who suffers from financial or economic difficulties, and the company does not expect anything in return. Fombrun et al (2000) and Sen and Bhattacharya (2001) stated that firms’ donation activities have a positive impact on financial performance and value. These studies document that CSR activities can promote the image of the product and merchandise and enhance firms’ reputation. Many studies on donation expenditure and corporate social responsibility have explored the relationship between donation expenditure and financial performance (that in turn promotes firm value) and the main drivers that increase firms’ donation activities. Kim and Choi (2011) document the relationship between donation expenditure (proxies for activities of corporate social responsibility) and financial performance. They show that donation expenditure has a nonlinear relationship with firm value in large firms, small and medium firms, and non-Chaebol firms
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