Determinants of CSR and its Economic Consequences

Abstract

Corporate Social Responsibility has traits that are innately qualitative, as it addresses beyond what sheer numerical figures would portray in financial statements. In the advanced economy, firms comprehensively respond to the society with upscale CSR performance rather than a simple reporting of profits. This paper ventures into the determinant of CSR and how CSR affects firm economic performances. By incorporating major financial accounts within empirical analysis, the dynamics of CSR in terms of concrete financial factors are manifest, and in this way we look into the determining mechanisms of accounting measures. Observing Tobins Q and portions of foreign equity holders renders economic consequences of CSR-practicing firms visible. Using a large sample of Korean firms for the period of 2003-2009, we find that large firms, R&D oriented firms, and good performing firms are more likely to invest in CSR while financially distressed firms reduce investment in CSR. Further, we find that foreign institutional investors invest in firms with greater CSR investment and the market positively reacts to CSR.