- Apply for Authority
- P-ISSN1738-3110
- E-ISSN2093-7717
- SCOPUS
ISSN : 1738-3110
Donation Expenses and Corporate Value: A Focus on the Corporate Governance Structure
Kang, Shin-Ae
- Downloaded
- Viewed
Abstract
Purpose - Recently, the number of corporations that practice environmental and social responsibility, besides engaging in traditional profit-seeking activities, has been growing steadily, as interest in Corporate Social Responsibility (CSR) is increasing. Recent research on CSR practices has identified the relationship between CSR activities and corporate value as one of the main issues in this respect. Considering that donations constitute a large proportion of a company's charitable activities, we considered the extent of donation expenses as a charitable activity in order to mitigate sample selection bias. Specifically, we analyzed the impact of donation expenses on firm value, while investigating if this impact varied in response to the level of corporate governance of firms. Research design, data, and methodology - We used non-financial firms listed on the Korean Stock Exchange, having their fiscal year end in December, and the sample period was 2006-2013. For the dependent variable, Tobin's q was used as the corporate value, and for the independent variable, donations were measured as the donation-expense-to-sales ratio. Corporate governance scores, as rated by the Korea Corporate Governance Service, were used to measure corporate governance levels because they consider the overall aspects of governance, including ownership structure, the board of directors, and the audit mechanism of individual companies. To examine the impact of donations on a company in relation to the level of corporate governance, we estimated regression models using the interaction terms of the governance dummy and donation variables. Then, we further estimated the regression models of two sub-samples that were classified according to the level of corporate governance. Similar to previous studies, the study uses variables that affect firm value, such as R&D expenditure, advertising expenses, EBITDA, debt-to-equity ratio, sales growth, company age, and company size as control variables. Results - The empirical results show that firm value significantly increased in response to an increase in donation expenses. Upon including the interaction terms of governance level dummy variables and donations, the coefficients of the interaction terms show significant positive values, while those of donation variables show significant negative values. In the strong governance sub-sample, the relationship between the donation expenses and corporate value was statistically positive (+) and significant. However, in the weak governance sub-sample, the relationship between the donation expenses and corporate value was statistically insignificant and negative (-). Conclusions - The empirical results suggest that donation expenses are significantly linked to an enhanced corporate value if firms have a good corporate governance structure. However, if the corporate governance structure is weak, the same relationship is not necessarily observed. The results of this study show that if a firm has high corporate governance, CSR practices enhance the company's reputation such that it has a positive (+) relationship with corporate value. If a firm has weak corporate governance, on the other hand, CSR practices are recognized as an agency cost and do not increase corporate value.
- keywords
- Donation, Corporate Social Responsibility(CSR), Corporate Reputation, Firm Value, Corporate Governance
Reference
Bae, Jungho, Kim, Byung-Do, & Kim, Jun Ho (2008). The Effect of Corporate Social Investment on the Market Value of a Korean Firm: An Event-Study Methodology. Korean Journal of Management, 16(2), 159-192.
Barnea, A., & Rubin, A. (2010). Corporate Social Responsibility as A Conflict Between Shareholders. Journal of Business Ethics, 97(1), 71-86.
Berman, S. I., Wicks, A. C., Kotha, S., & Jones, T. M. (1999). Does stakeholder orientation matter? The Relationship between Stakeholder Management Models and Firm Financial Performance. Academy of Management Journal, 42(5), 488-506.
Black, B., Kim, W., Jang, H., & Park, K. (2008). How Corporate Governance Affects Firm Value: Evidence on Channels from Korea. SSRN working paper series, Retrieved July 10, 2014, from http://papers. ssrn.com/sol3/papers.cfm?abstract_id=844744.
Brown, W. O., Helland, E., & Smith, J. K. (2006). Corporate Philanthropic Practices. Journal of Corporate Finance, 12(5), 855-877.
Carroll, A. B. (1991). The Pyramid of Corporate Social Responsibility: Toward the Moral Management of Organizational Stakeholders. Business Horizons, 34(4), 39-48.
Carroll, A. B. (1999). Corporate Social Responsibility : Evolution of a Definitional Construct. Business and Society, 38(3), 268-295.
Choi, Won-Wook, Bae, Ji-Hun, & Kim, Sang-il (2009). The Effect of Charitable Contributions on the Firm Value – From the Perspective of Corporte Ownership -. Korean Management Review, 38(6), 1415-1443.
Choi, Woon Yeol, & Lee, Ho Sun (2009). Determinants of Corporate Philanthropy: Application of Several Econometric Methodologies. Sogang Journal of Business, 20(1), 139-152.
Choi, Woon Yeol, Lee, Ho Sun, & Hong, Chan Sun (2009). Corporate Social Responsibility and Firm Value: Focused on Corporate Contributions. Korean Management Review, 38(2), 407-432.
Chon, Mi Lim, & Yoo, Jae Mee (2013). Corporate Social Responsibility and Financial Performance – Investingating the moderating effects of motive and commitment of CSR. Korean Management Review, 42(5), 1159-1185.
Cochran, P. L., & Wood, R. A. (1984). Corporate Social Responsibility and Financial Performance. Academy of Management Journal, 27(1), 42-56.
Jun, Sang-Gyung, & Han, Sang-Lin (2006). Corporate Social Responsibility and Analysis of Korean Companies. Journal of Commodity Science & Technology, 24(1), 185-201.
Kang, Chang-Won (2008). A Study for how a CEO's moral management influences on his employees' absorbing into their business in a Stock company, Journal of Distribution Science, 6(1), 63-77.
Kang, Hyoung Goo, & Jun, Sang Gyung (2011). Empirical Analysis of Korean Corporate Giving -Past and Present. The Review of Business History, 26(4), 209-228.
Kang, Shin-Ae, & Kim, Tae-Joong (2014). A study of the relationship between corporate governance and real earnings management: Based on foreign investors and growth. Journal of Distribution Science, 12(4), 85-92.
Kim, Ae-Hyun, & Yoo, Jae-Wook (2013). The Moderating Effect of Corporate Governance on the Relations between Corporate Social Responsibility and Corporate Value. Korean journal of business administration, 26(2), 219-240.
Kim, Changsoo (2009). Corporate Social Responsibility and Firm Value. Korean Journal of Financial Studies, 38(4), 507-545.
Kim, Chong-Sung, Hong, Jung-Hwa, & Kim, Wan-hee (2008). The Analysis on the Impact of Corporation's Ownership Structure Change on the Level of Contributions. Journal of Taxation and Accounting, 9(2), 105-126.
Kim, Hyoung gu (2012). The Impact of Cumulative Effcet of Cash Donation on Business Performance. Journal of The Society of Computer and Information, 17(4), 147-153.
Kim, Manjong, Chung, Seungwha & Choi, Youngkeun (2013). The Effect of Corporate Giving Activity on the Firm Performance. Korean Journal of Industrial Relations, 23(2), 75-100.
Kim, Mee-Lan, Kwon, Il-Sook, & ․Sul, Wonsik (2014). The Relationship Between CRS and Corporate Governance. Journal of CEO and Management Studies, 17(1), 125~144.
Kim, Sang-Hyun (2014). Governance mechanisms and opportunism in inter-firm relational exchanges. Journal of Distribution Science, 12(1), 5-12.
Kim, Sun-Hwa, & Lee, Kye-Won (2013). Corporate Social Responsibility(CSR) in Accounting: Review and Future Direction. Korean journal of business administration, 26(9), 2397-2425.
Kim, Sung Hwan, & Kim, Mi Na (2011). The Effects of Firms`Contribution Expenses and Catering Expenses on Their Profitability in Korea: Theory and Evidence. Korean Management Review, 40(3), 659-685.
Kim, Young-Sik, & Wee, Jung-Bum (2011). Comprehensive Analysis of Corporate Social Responsibility and Financial Performance. Korean journal of business administration, 24(5), 2913-2950.
Kook, Chan Pyo, & Kang, Yun Sik (2011). Corporate Social Responsibility, Corporate Governance and Firm Value. Korean Journal of Financial Studies, 40(5), 713-748.
Kwon, Soon Chang, Kim, Hyung Kook, & Choi, Su-Man (2003). An Empirical Study on the Determinating Factor of Corporate Contributions. Journal of Business Research, 18(2), 35-57.
Lee, Soo-Wook, & Cha, Eun-Kwang (2014). A Study of the Impact of Customer Value on Relationship Quality and Customer Loyalty. Journal of Distribution Science, 12(2), 81-93.
Lev, B., Petrovits, C., & Radhakrishnan, S. (2010). Is Doing Good Good for You? How Corporate Charitable Contributions Enhance Revenue Growth. Strategic Management Journal, 31(2), 182-200.
Levy, F. K., & Shatto, G. M. (1978). The Evaluation of Corporate Contributions. Public Choice, 33(1), 19-28.
Lopez, M. V., Garcia, A., & Rodiguez, L. (2007). Sustainable Development and Corporate Performance: A Study Based on the Dow Jones Sustainability Index. Journal of Business Ethics. 75(3), 285-300.
Mahdi Salehi, & Azadeh Asgari. (2013). Corporate governance and earnings quality: The iranian evidence. Journal of Distribution Science, 11(6), 5-11.
Moore, G. M. (2001). Corporate Social and Financial Performance: An Investigation in the U.K. Supermarket Industry. Journal of Business Ethics, 34(3), 299-315.
Navarro, P. (1988). Why Do Corporations Give to Charity? Journal of Business, 61(1), 65-93.
Park, Hun-Joon, Kwon, In-Su, Shin, Hyun-Han, & Chung, Ji-Woong (2004). The Relationship between Corporate Environmental and Financial Performance. Korean Management Review, 33(5), 1461-1487.
Posnikoff, J. (1997). Disinvestment from South Africa: They Did Well by Doing Good. Contemporary Economic Policy, 15(1), 76-86.
Schwartz, R. A. (1968). Corporate Philanthropic Contributions. Journal of Finance, 23(3), 479-497.
Shin, H. Lee, S., & Chang, J. (2004). Outside Monitors and Firm Value. Asian Review of Financial Research, 17(1), 41-72.
Teoh, S. H., Welch, I., & Wazzan, C. P. (1999). The Effect of Socially Activist Investment Policies on the Financial Markets: Evidence from the South African Boycott. Journal of Business, 72(1), 35-89.
The Federation of Korean Industries (2013). Corporate Community Relations White Book 2013. Seoul, Korea:FKI.
Vance, S. (1975). Are Socially Responsible Firms Good Investment Risks? Management Review, 64(8), 18-24.
Waddock, S. A., & Graves, S. B. (1997). The Corporate Social Performance - Financial Performance Link. Strategic Management Journal, 18(4), 303-319.
- Downloaded
- Viewed
- 0KCI Citations
- 0WOS Citations