Impact of Managerial Ownership on Corporate Social Responsibility in Korea

Abstract

A firm’s corporate social responsibility (CSR) record improves its image and that of its managers. This ultimately can positively affect enterprise value. However, CSR investments do not necessarily lead to better firm performance, as long-term costs are incurred. Therefore, managers often make CSR investment choices based on personal incentives. This study analyzed the relationship between managerial ownership and CSR activities in Korean public companies based on different managerial CSR incentives and ownership levels. Using the Korean Economic Justice Institute’s CSR index, the results show that firms with higher managerial ownership had excellent CSR records. Higher managerial ownership led to alignment between managers and shareholders, with managers making CSR investments to enhance long-term enterprise value. However, in firms with lower accounting transparency, managers reduced CSR investments. Managers did not value their CSR reputations in firms with poor financial reporting quality and serious information asymmetry. Instead, they diverted CSR resources to other projects to meet their interests. As Korean firms increase their investment in CSR, CSR disclosure responsibility is strengthened. Our study results provide significant implications to academics, practitioners, investors, and other stakeholders, suggesting the importance of corporate ownership structure on investment in CSR.