한국생산성학회

The primary goal of business entities has shifted from profit-orientation toward broader socially motivated perspectives over the recent years. In the past, due to the over-emphasis on the short-term profits, business community frequently had to confront criticisms and protests raised by society at large. Today’s corporations are well aware of the importance of keeping balance between social responsibility and the pursuit of financial goals to ensure their long-lasting survival and prosperity. As such, business organizations make efforts to enhance their corporate image as a way to improve long-term profitability. With the heightened recognition of corporate social responsibility (CSR) in society, corporate entities have continuously refined their strategies to meet diverse stakeholders’ demands. In accordance with these circumstances, extensive research efforts have been undertaken to assess the empirical association between CSR and corporate financial performance (CFP) under diverse geographical context. However, rarely has it focussed on the association between CSR and CEO and CEO’s power, even though the final decision maker for CSR is the CEO. To fill void, this study examines the empirical relation between CSR and CEO power in Korean context. Based on agency theory, Barnea and Rubin(2010) suggests that powerful CEOs have an interest in over-investing in CSR in order to obtain private benefits of building reputation, possibly at a cost to shareholders. On the other hands, the conflicts resolution view asserts that powerful CEOs engage in the optimal level of CSR that lead to improve firm value through resolving the conflicts among various stakeholders. While those two views are predicting contradictory impact of CEO power on CSR, empirical research examining the association between CEO power and CSR in Korean context does not exist, to our knowledge. As such, this study is the first that provides Korean evidence on the relationship between CEO power and CSR. To achieve the above research objective, we examine whether the CSR performance is systematically related with the proxy of CEO power using a ordered probit regression model. In addition, we verify how the CSR performance with CEO power impact upon firm value using OLS and 2SLS. We assess CSR performance using ESG grade developed by KCGS(Korea Corporate Governance Service). CEO power is developed using CEO pay slice suggested by Bebchuk et al.(2011). Our sample is drawn from companies listed on the KRX for which the information of executive compensation and ESG grade are available. Our sample period covers 4 years from 2013-2016 and the final sample includes 621 firm-years from both manufacturing and non-manufacturing industries. Our main findings are as follows. First, we find a negative and significant relationship between CEO power and CSR. Second, we find that the interactive terms of CPS×CSR is positively correlated with firm value measured by Tobin’s Q. These results imply that powerful CEOs engage in the optimal level of CSR that lead to improve firm value. In other words, our results show that powerful CEO restricts over-investing in CSR that do not contribute to increasing firm value and involve only additional expenditure in Korean context. Major contribution of this study is one of the pioneering researches aiming at providing Korean evidence investigating the empirical association between CEO power and CSR performance. And second contribution derives from the improvement of research design over many previous studies. In particular, we incorporate recent innovations in measuring corporate governance system into our research design by using CEO pay slice as an empirical proxy of CEO centrality. In addition, we conducted additional analysis of the relation between interaction terms and firm value after controlling for potential endogeneity by using two-stage least squares regression analysis based on the simultaneous equation approach.