Abstract
There have been numerous studies on corporate social responsibility (CSR) and its relation to corporate performance. Recently, studies in this field have paid particular attention to the method of measurement in order to identify the CSR activities. One of the widely recognized measures to proxy CSR is the Environmental, Social, and Governance (ESG) score. This paper examines the relationship between Corporate Social Responsibility (CSR) and corporate profit by testing the ESG performance score on the firm’s Financial Performance (FP), specifically for Korea Stock Market (KOSPI) listed firms in the period of 2008 ~ 2014. We use three separate individual Environmental, Social and Corporate Governance (ESG) disclosure scores from Bloomberg for the CRS proxy measure, as well as the Return on Equity (ROE), Market-to-Book Ratio (MBR) and Stock Return for the FP measures. We found that the ESG disclosure scores (the measures of environmental, social, and governance responsibility performance) in the Korean corporations shows diversified results. Particularly, the environmental responsibility performance score presents a negative (or U curve) relationship with FP, whereas the governance responsibility performance score presents a positive (or inverse U curve) relationship with FP. On the other hand, we did not find any statistically significant evidence of a relationship between the social responsibility performance score and FP.
Highlights
Corporate Social Responsibility (CSR) is a form of corporate self-regulation integrated into business models
The variables are Environmental Disclosure performance Score (EDS) environmental disclosure score, Social Disclosure performance Score (SDS) social disclosure score, Governance Disclosure performance Score (GDS) governance disclosure score, Return on Equity (ROE) return on equity, Market-to-Book Ratio (MBR) market-to-book ratio implying Tobin q, Stock Return annual stock market return, Leverage leverage ratio as proxy for risk, Log (Asset size) log value of asset size, D dummy variable for financial crisis, L.xxx lagged variable, xxx_xxx cross-term P-values in parentheses: * p b 0.1, ** p b 0.05, *** p b 0.01 Data source: Bloomberg reported in specifications (1)-(5), viz. the two types of pooled OLS, random effect panel, fixed effect panel and quasi-maximum likelihood regression, respectively
In the present study, we investigated the relationship between corporate social responsibility and financial performance using the Bloomberg ESG disclosure score
Summary
Corporate Social Responsibility (CSR) is a form of corporate self-regulation integrated into business models. A non-linear relationship between CSR and FP is in line with economic intuition, but has rarely been tested, as pointed out in Barnett and Salomon (2012) Those firms which voluntarily engage in more socially responsible activities incur higher corresponding costs at an earlier stage and, the increase in their CSR score has a negative relationship with their FP if the study is done only linearly. In this line of consideration, Nollet et al (2016) tested both linear and non-linear relationships between CSR performance and FP They used an alternative third-party auditors’ data set, viz. Bloomberg’s ESG (Environmental, Social, and Governance) disclosure score, as a new proxy for CSR. This is the same finding as that of Nollet et al (2016) in SDS for US firms
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