Abstract

Corporate social responsibility (CSR) encompasses activities through which a firm ultimately achieves sustainable management by improving the society and environment. Contrary to the general perception that CSR activities can improve only the enterprise value (EV), they can also be strategically deployed based on agency problems (situational factors). Specifically, by focusing on the nature of related party transactions that exhibit high tendencies to introduce agency problems, this study analyzes whether South Korean firms that engage in such transactions perform CSR activities more actively than those that do not. The empirical analysis reveals that firms that engage in related party transactions exhibit increased CSR activity scores, indicating that managers are more likely to deploy CSR activities as a tool for managing their image and concealing or embellishing illicit corporate transactions. Hence, CSR activities undertaken at the expense of shareholders may be opportunistically exploited as a tool for positively embellishing a firm’s image. However, it is observed that chaebol companies do not strategically exploit CSR activities, despite being engaged in related party transactions. Thus, chaebol companies that are registered with a large business group and under the supervision system of the government are unlikely to opportunistically exploit CSR activities.

Highlights

  • Contrary to previous studies that focused on the agency problem between professional managers and external shareholders, this study examines the relationship between the agency problems and corporate social responsibility (CSR)

  • CSR: CSR scores evaluated by the Korea Economic Justice Institute (KEJI) index (RPT = 1 if the corporation conducted related party transactions (RPTs), otherwise 0 and CHA = 1 if the firm belonged to a large business group, otherwise 0), SIZE: ln(total assets); LEV: total liabilities/total assets, MB: market-to-book ratio of the total assets, return on equity (ROE): net income/total equity; LAR: largest shareholder ownership; FOR: foreign investor ownership

  • This study first investigated the relationship of RPT with the CSR activity scores for the entire sample before introducing RPT × CHA to perform the analysis

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Summary

Introduction

Publisher’s Note: MDPI stays neutral with regard to jurisdictional claims in published maps and institutional affiliations. South Korean chaebol companies (designated as a large business group and subjected to monitoring and supervision by the Fair Trade Commission), confirming the decrease in the significantly positive (+) relationship between RPTs and CSR activities. These findings can help investors make informed decisions employing information regarding a firm’s CSR activity by verifying whether external supervision suppresses the opportunistic exploitation of these activities, even for firms with severe agency problems.

CSR Activities
Hypothesis Formulation
Methodology
Research Design and Sample Selection
Descriptive Statistics and Correlation
Main Results
F Statistics
Further Analysis
Full Text
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