Corporate Social Responsibility and Stock Price Crash Risk: Evidence from Korea

Kang， Sang Koo; 김학순; 임현일

Journal of Insurance and Finance

2015, 26(4), pp.113-139
Publisher : Korea Insurance Research Institute
Research Area : Business Management

Kang， Sang Koo ¹ , 김학순 ² , 임현일 ³

¹ 고려대학교
² 트로이대학교
³ 단국대학교

ABSTRACT

We examine the effect of a firm's corporate social responsibility(CSR) on the stock price crash risk. Whilst a firm's stock price crash risk increases with its opaqueness(Jin and Myers 2006), the effect of CSR on opaqueness is still controversial. Some researches argue that opaqueness decreases with CSR(Kim et al., 2012; Gelb and Strawser, 2001). Other researches report the opposite in that CSR could be from strategic motives and agency problem could intervene(Brown et al. 2006; Barnea and Rubin 2006). Thus, the relation becomes an empirical question. If CSR is negatively(positively) related to opaqueness, stock price crash risk will increase(decrease). Using Korean companies listed in the KOSPI from 2004 to 2011, we find significantly negative (-) relation between CSR level and stock price crash risk, after controlling firm specific characteristic variables. These findings support Kim et al.(2014), which pioneered the relationship between CSR and stock price crash risk with the U.S. data. Further, we show another significantly negative (-) relation between changes in the CSR and stock price crash risk, after the level of CSR is controlled. Lastly. we attempt to prove the utility of subsection in the KEJI index, which best explains KEJI from principal component factor analysis. Out of the seven categories that comprises KEJI, consumer protection, environment protection, and contribution to economic growth are factors that explains KEJI index best.
KEYWORDS

Corporate Social Responsibility , Stock Price Crash Risk , Information Asymmetry , Agency Problem
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