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Product market competition and corporate social responsibility activities: Perspectives from an emerging economy

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  • Lee, Ji Hye
  • Byun, Hee Sub
  • Park, Kyung Suh

Abstract

This study examines the effect of product market competition on corporate social responsibility activities in an emerging economy. Contrary to the findings of previous papers in cases of developed countries, we empirically find that firms in more competitive product markets are less engaged in corporate social responsibility activities. Considering the disciplinary role of product market competition, this result implies that corporate social responsibility activities represent overinvestments by managers rather than a competitive strategy. Additionally, consistent with agency theory, this relationship is prominently observed in firms with high free cash flow and low managerial ownership. We also find the positive firm value relevance of corporate social responsibility activities is significantly reduced or even becomes negative in less competitive product markets. The overall results suggest that existing theories on corporate social responsibility activities in advanced countries may apply differently to emerging economies with less-developed capital markets and weak investor protection.

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  • Lee, Ji Hye & Byun, Hee Sub & Park, Kyung Suh, 2018. "Product market competition and corporate social responsibility activities: Perspectives from an emerging economy," Pacific-Basin Finance Journal, Elsevier, vol. 49(C), pages 60-80.
    • Handle: RePEc:eee:pacfin:v:49:y:2018:i:c:p:60-80
    DOI: 10.1016/j.pacfin.2018.04.001
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    Cited by:

    1. Shu, Pei-Gi & Chiang, Sue-Jane, 2020. "The impact of corporate governance on corporate social performance: Cases from listed firms in Taiwan," Pacific-Basin Finance Journal, Elsevier, vol. 61(C).
    2. Francisco Gomez Martinez & Sander Onderstal & Maarten Pieter Schinkel, 2019. "Can Collusion Promote Corporate Social Responsibility? Evidence from the Lab," Tinbergen Institute Discussion Papers 19-034/VII, Tinbergen Institute, revised 12 Nov 2019.
    3. Ja Eun Koo & Eun Sun Ki, 2020. "Corporate Social Responsibility and Employee Safety: Evidence from Korea," Sustainability, MDPI, vol. 12(7), pages 1-14, March.
    4. Babar, Md. & Habib, Ahsan, 2021. "Product market competition in accounting, finance, and corporate governance: A review of the literature," International Review of Financial Analysis, Elsevier, vol. 73(C).
    5. Çiğdem Vural‐Yavaş, 2021. "Economic policy uncertainty, stakeholder engagement, and environmental, social, and governance practices: The moderating effect of competition," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 28(1), pages 82-102, January.
    6. Liming Zhao & Miles M. Yang & Zhenyuan Wang & Grant Michelson, 2023. "Trends in the Dynamic Evolution of Corporate Social Responsibility and Leadership: A Literature Review and Bibliometric Analysis," Journal of Business Ethics, Springer, vol. 182(1), pages 135-157, January.
    7. Sang Koo Kang & Hee Sub Byun, 2020. "Are Corporate Environmental Responsibility Activities an Efficient Investment or an Agency Cost? Evidence from Korea," Sustainability, MDPI, vol. 12(9), pages 1-22, May.
    8. Andrey B. Ankudinov & Idelia R. Badykova, 2020. "Empirical analysis of the relationship between the costs of corporate social responsibility policy implementation and Russian companies’ financial performance," Upravlenets, Ural State University of Economics, vol. 11(2), pages 16-26, April.
    9. Huang, Yin-Siang & Bui, Dien Giau & Lin, Chih-Yung & Robin,, 2022. "The effect of abnormal institutional attention on bank loans," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 76(C).
    10. Zhou, Taiyun & Gan, Jiawu, 2022. "Institutional investors' site visits and corporate social responsibility: Evidence from China," Economic Modelling, Elsevier, vol. 115(C).
    11. Yang Zhang & Xinxin Zhang, 2022. "The Threshold Effect of Executive Compensation on Corporate Environmental Responsibility: Based on the Moderating Effect of Industry Competition," Sustainability, MDPI, vol. 14(14), pages 1-24, July.
    12. Popkova, Elena & DeLo, Piper & Sergi, Bruno S., 2021. "Corporate Social Responsibility Amid Social Distancing During the COVID-19 Crisis: BRICS vs. OECD Countries," Research in International Business and Finance, Elsevier, vol. 55(C).
    13. Liu, Zheng & Shen, Hongtao & Welker, Michael & Zhang, Ning & Zhao, Yang, 2021. "Gone with the wind: An externality of earnings pressure," Journal of Accounting and Economics, Elsevier, vol. 72(1).
    14. Yasir Hayat Mughal & Mahad Jehangir & Muzzamil Khan & Mehran Saeed, 2021. "Nexus between corporate social responsibility and firm’s performance: A panel data approach," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 3173-3188, April.
    15. Mabel D. Costa & Ahsan Habib, 2021. "Trade credit and cost stickiness," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(1), pages 1139-1179, March.
    16. Yu, Yin & Chi, Jing, 2021. "Political embeddedness, media positioning and corporate social responsibility: Evidence from China," Emerging Markets Review, Elsevier, vol. 47(C).

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    More about this item

    Keywords

    Product market competition; Corporate social responsibility activity; Emerging economy; Overinvestment; Korea;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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