Who Is the Beneficiary of Slack on Corporate Financial Performance and Corporate Philanthropy? Evidence from South Korea

Seungwha (Andy) Chung,Andres Guiral,Hyunsang Pyo

doi:10.3390/su11010252

Seungwha (Andy) Chung, Andres Guiral + Show 1 more

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https://doi.org/10.3390/su11010252

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Abstract

As stakeholder relations vary depending on firm characteristics, the associations among corporate financial performance (CFP), corporate giving, and corporate social performance (CSP) are complex. In this paper, we contribute to the literature by exploring CFP as a predictor of CSP by differentiating the stakeholder groups that firms interact with; that is, primary versus secondary stakeholder relations. Our study also extends the existing literature by examining who the beneficiaries of corporate philanthropy are, and the role played on the CFP/CSP association. By extracting a sample of 52 firms and 312 firm-year observations from the Korea Economic Justice Institute database, we find that while CFP has a positive effect only on primary stakeholder relations, corporate philanthropy has a positive impact on both primary and secondary stakeholder relations. Furthermore, we observe an overall influence of CFP on stakeholder relations when corporate philanthropy is high. Our findings suggest that differentiating multiple stakeholder groups together with the role played by corporate philanthropy provides a more valuable and meaningful analysis of the antecedents of CSP.

Highlights

The association between corporate financial performance (CFP) and corporate social performance (CSP) has been intensively explored over the last decades [1,2,3]
Our findings provide strong support for our hypotheses, allowing us to identify the ideal beneficiary of corporate financial slack resources given stakeholder relations, where CFP and corporate philanthropy were considered to be two distinct antecedents of CSP
Consistent with hypotheses 1 and 2, we found that return on sales was positive and significantly correlated with Primary Stakeholders relations (r = 0.305, p < 0.01), but not with Secondary Stakeholders relations (r = 0.013), and that donation ratio to sales was positively correlated with both primary and secondary stakeholder relations (r = 0.274 and 0.235, respectively; p-values < 0.01)

Summary

Introduction

The association between corporate financial performance (CFP) and corporate social performance (CSP) has been intensively explored over the last decades [1,2,3]. While the instrumental stakeholder theory suggests that CSP influences CFP, the slack resources hypothesis argues that firms with superior CFP may potentially have greater freedom to allocate resources into social and environmental activities, which, in turn, will improve CSP [4,5]. We contribute to the literature exploring CFP as a predictor of CSP by differentiating the stakeholder groups that firms interact with; that is, primary from secondary beneficiaries of corporate slack resources. CSP activities with these primary stakeholders are essential to the firm’s core business [14]. Because these actions are consistent with the firm’s profit-making goal, we predict that primary stakeholders will be the main beneficiaries of corporate financial slack resources

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