The Value Relevance of Corporate Social Responsibility: Focusing on Donation Expenditure

Gee Jung Kwon

doi:10.5539/ass.v12n8p1

Abstract

This paper investigates the value relevance of corporate social responsibility. In particular, the paper examines the time lag value relevance of donation expenditure on firm value over the period of 2000–2014 in the listed Korean stock markets. Through empirical analysis, the paper provides evidence that donation expenditure has a significant effect on future firm value.The empirical results of this paper support research hypothesis 1 (donation expenses have an effect on firm value) and research hypothesis 2 (donation expenses have a time lag effect on firms’ future value). In particular, the results show that donation expenses have an effect on firm value and the time lag interval is from two to 12 years. These results suggest that donation expenses can be regarded as assets that have potential for firms’ future cash flows.The empirical evidence of this paper suggests there should be debate on whether the accounting treatment of donations should be changed in Korean accounting practices.

Highlights

For several decades, many companies have invested a great amount of resources in donation activities classified as corporate social responsibility (CSR)
The empirical results of this paper support research hypothesis 1 and research hypothesis 2
This paper focuses on the time lag value relevance of donation expenditure to test whether corporate donation activities should be treated as “assets” or “business expenses” in firms listed on the Korean stock markets

Summary

Introduction

Many companies have invested a great amount of resources in donation activities classified as corporate social responsibility (CSR). The concepts of CSR have evolved over time, and CSR has two definitions from two points of view. The socio-philanthropic perspective defines CSR as actions and charitable programs restraining profit maximization, and the legal standpoint of complying with regulations and rules defines CSR as charitable actions beyond the minimum legal parameters (Andrews, 1973; Buehler & Shetty, 1976; Hollender, 2004; Pierce & Aguinis, 2009; D’Aprile & Talò, 2014). Advertisement and entertainment costs are spent for business purposes. Donation cost is differentiated from advertisement and entertainment cost because of its charitable purpose, with the firm getting nothing in return. Even though donation is not for business but for charity, many companies willingly incur donation expenses, and voluntary donation cost is different from imposed corporate tax

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