CEO's Incentive to Manage Reputation and Corporate Social Responsibility(CSR): Evidence from Korea

Kang， Sang Koo; 임현일

Journal of Insurance and Finance

2015, 26(1), pp.73-108
Publisher : Korea Insurance Research Institute
Research Area : Business Management

Kang， Sang Koo ¹ , 임현일 ²

¹ 고려대학교
² 고려대학교

ABSTRACT

CEO has incentive to manage their reputation from either private benefits of control or career concern. We examine whether CEO's incentive to manage their reputation can affect CSR activity of the firm they manage. Further, we explore the effect of CSR, driven by such incentive, on firm value and short-term performance. Using Korean companies from 2005 to 2010, we find significantly positive relation between CEO's incentive to manage their reputation and CSR activities after controlling governance and firm characteristic variables. Non-family CEO, with greater incentive for reputation management, significantly increases the CSR activities more. Further, we find that CSR does not increase firm value when CSR is made by non-family CEO with greater incentive for reputation management. Even worse, these incentive driven CSR significantly decreases firm value. We interpret the result that CSR activities could be exploited as a means to improve CEO's reputation, when the CEO has larger incentive to manage their reputation.
KEYWORDS

CEO , Reputation , Corporate Social Responsibility , Non-family CEO , Firm Value
REFERENCES (31)

[journal] 강형철 / 2014 / Active Family Management and Firm Performance in the Large Business Group / 재무연구 / 한국재무학회 27 (1) : 141~176

[journal] 박헌준 / 2004 / The relationship between Corporate Environmental and Financial Performance / 경영학연구 / 한국경영학회 33 (5) : 1461~1487

[journal] 천미림 / 2011 / The Effect of Sustaining Corporate Social Responsibility on Relationship between CSR and Financial Performance / 회계정보연구 / 한국회계정보학회 29 (3) : 351~374

[report] Barnea. A. / 2006 / Corporate Social Responsibility as a Conflict between Shareholders / University of Texas at Austin

[report] Becchetti, L. / 2007 / Corporate Social Responsibility and Shareholder’s Value: An Event Study Analysis / Federal Reserve Bank of Atlanta

[journal] Borghesi. R. / 2014 / Corporate Socially Responsible Investments: CEO Altruism, Reputation, and Shareholder Interests / Jouranl of Corporate Finance, forthcoming

[journal] Brown. W. / 2006 / Corporate Philanthropic Practices, Journal of Corporate Finance 12 : 855~877

[book] Bruyn. S. / 1987 / The field of Social Investment / Cambridge University Press

[journal] Burkart.M / 2004 / Family firms / Journal of Finance 58 : 2167~2202

[journal] Derwall. J. / 2005 / The Eco-Efficiency Premium Puzzle / Financial Analysts Journal 61 : 51~63

[journal] Edmans. A. / 2009 / A multiplicative model of optimal CEO incentives in market equilibrium / Review of Financial Studies 22 : 4881~4917

[journal] Faccio. M. / 2006 / Politically Connected Firms / American Economic Review 96 : 369~386

[journal] Flannery. M. J. / 2013 / Estimating dynamic panel models in corporate finance / Journal of Corporate Finance 19 : 1~19

[journal] Francis, J. / 2008 / CEO reputation and earnings quality / Contemporary Accounting Research 25 : 109~147

[other] Friedman. M. / 1970 / The Social Responsibility of Business Is to Increase Its Profits / New York Times Magazine : 122~126

[journal] Jensen.M.C. / 1976 / Theory of the firm: Managerial behavior, agency costs and ownership structure / Journal of Financial Economics 3 : 305~360

[journal] Jo.H. / 2011 / Corporate Governance and Firm Value: The Impact of Corporate Cosical Responsibility / Journal of Business Ethics 103 : 351~383

[journal] Jones, T. M. / 1980 / Corporate social responsibility revisited, redefined / California Management Review 22 : 59~67

[journal] Landon, S. / 1997 / The Use of Quality and Reputation Indicators by Consumers: The case of Bordeaux Wine / Journal of Consumer Policy 20 : 289~323

[journal] Maignan, I. / 2001 / Corporate citizenship as a marketing instrument-Concepts, evidence, and research directions / European Jouranl of Marketing 35 : 457~484

[journal] Malmendier, U. / 1638 / Superstar CEOs / The Quarterly Journal of Economics 124 : 2009~

[journal] Milbourn, T. / 2003 / CEO reputationand stock-based compensaton / Journal of Financial Economics 68 : 233~262

[journal] Pava,M. / 1996 / The Assosiation Between Corporate Social Responsibility and Financial Performance: The Paradox of Social Cost / Journal of Business Ethics 15 : 321~357

[journal] Rajagopal. S. / 2006 / CEO’s outside employment opportunities and the lack of relative performance evaluation in compensation contracts / Journal of Finance 61 : 1813~1844

[journal] Schwart. R. / 1968 / Corporate Philanthropic Contributions / Journal of Finance 51 : 1201~1225

[journal] Statman. M. / 2000 / Socially Responsible Mutual Funds / Financial Analysts Journal 56 : 30~39

[report] Tsoutsoura, M. / 2004 / Corporate Social Responsibility and Fianacial Performance / UC Berkely

[journal] Ullmann. A. / 1985 / Data in Search of a Theory: A Critical Examination of the Relationship Among Social Performance, Social Disclosure, & Economic Performance / Academy of Management Review 10 : 450~477

[journal] Villalonga.B. / 2006 / How do Family Ownership, Management, and Control Affect Firm Value? / Journal of Financial Economics 80 : 385~417

[journal] Waddock,S.A. / 1997 / The Corporate Social Performance Financial Performance Link / Strategic Management Journal 18 : 303~319

[journal] Yermack. D. / 2006 / Flights of fancy: Corporate jets, CEO perquisites, and inferior shareholder returns / Journal of Financial Economics 80 : 211~242
KCI Citation (10)

KJC Korea
Journal Central

Statistics

Tools