Who Values Corporate Social Responsibility in the Korean Stock Market?

Sangki Lee,Insu Kim,Chung-Hun Hong

doi:10.3390/su11215924

Sangki Lee, Insu Kim + Show 1 more

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https://doi.org/10.3390/su11215924

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Journal: Sustainability	Publication Date: Oct 24, 2019
Citations: 11	License type: CC BY 4.0

Affiliation: Soongsil University, Kookmin University

Abstract

In this study, we explore the stock market’s response to new information that a firm has been included in the Dow Jones Sustainability Index (DJSI) in Korea. In addition, we investigate which investor group contributes to the changes, if any significant increase in returns is found, after a firm’s incorporation into the DJSI. This study aims to identify which investors value corporate social responsibility (CSR) in the Korean stock market and examine whether the government-led campaigns for CSR have affected private sector investors, as well as those from the public sector. We find statistically significant abnormal returns for firms after their first listing in the index, implying that investors in Korean markets consider a firm’s inclusion in the DJSI as good news for the firm value. Using a unique dataset from the Korea Exchange (KRX) on investors, we classify investors into four groups: individual investors, public pension funds, other institutional investors, and foreign investors. Unlike prior studies that focus only on the existence of abnormal returns, we investigate the trading behavior of each investor group for such announcements. We find that it is mainly the buying pressure of public pension funds that generates abnormal returns. By contrast, we cannot find statistically significant results for the other investor groups. This result implies that the government-led campaign for CSR has only had limited effects in the Korean stock market, and that awareness of CSR in the private sector should be improved.

Highlights

Over the past few decades, the importance of corporate sustainability, or corporate social responsibility (CSR) has increased in business and in asset management in securities markets
The second question is if we find any significant abnormal returns (ARs) for firms, which investors cause the increase in returns after the first inclusion in the CSR indices? We are especially interested in whether the abnormal returns, if there are any, are generated by public or private sector investors
We find that abnormal returns during the event window are mainly caused by the buying pressure of public pension funds

Summary

Introduction

Over the past few decades, the importance of corporate sustainability, or corporate social responsibility (CSR) has increased in business and in asset management in securities markets. Many researchers adopt Carroll’s [1] concept that CSR encompasses “the economic, legal, ethical, and discretionary expectations that society has of organizations.”. The question is whether CSR implementation is consistent with the firm’s primary goal of improving shareholder wealth and increasing firm value. Many empirical studies on the relationship between CSR and firm value report inconsistent results. Some studies report a positive relationship between CSR performance and firm value [2,3,4,5,6,7,8,9], while others find a negative [10,11,12,13] or irrelevant relationship [14,15,16]

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