Empirical Research On The Relationships Between CFP And CSP

Since the empirical researches with the view to clarify the relationship between corporate social performance and corporate financial performance started in 1972, a number of researches have dealt with the firms in the developped countries. Although existing studies, with not a few limitations, have not gained a consistent result by which one cannot successfully see a clear picture, this issue, as one of the major issues of CSP studies, is gaining more and more attention from not only researchers, managers at fields but also all the stakeholders surrounding firms. In Korea, KEJI under CCEJ, one of the Korean influential civil groups, has been evaluating and pronouncing KEJI Index annually since 1991. However,only a few researchers in Korea have sporadically produced limited empirical results, which cannot be helpful enough for business managers to make CSP-related decisions.This research, by using 110 Korean listed firms'550 balanced panel data during 5 years from 2001 to 2005, analyzed the relationship between CSP and CFP through year-to-year OLS regression and panel regression such as fixed effect model and random effect model.This paper, according to the recent research tendency of using panel regression which was initiated since around 2000 in this field, has important meaning in compensating for the lack of research for Korean listed firms. In addition, this paper, in order to minimize the possibilities of"spurious correlation"caused by omitted variables, which had been pointed out as one of the limitations for empirical research in this field, not only examined the simple model including firm size, leverage ratio, and industry dummy variables made by existing researches, but also checked the sensitivity of results by other models with a variety of control variables through forward selection method. In addition, this paper, by analyzing the year-to-year cross sectional OLS regressions, examines the possibility of generalization the existing empirical papers'results provided by using 1 year data.The result found out:First, (1) Korean listed firms'CSP has significant quadratic curve relationship with CFP since 2002, which partially supports"good management hypothesis". This means Korean firms with higher than certain level of CSP(according to KEJI index after removing economic performance, higher than 38.34-39.68), increase of its CSP level can be related to get better CFP. (2) The firms with high value don't have to do with high CSP, which doesn't support"slack resource hypothesis"for Korean firms during the research periods. The result means Korean firms'CSP is affected not by CFP but by other factors such as firm size, capital structure, chaebol incorporation, ownership structure, and ratio of outside directors.Second, this research proviedes the opportunity of comparing both results from cross-sectional regression and panel regression. F-test and Lagrange multiplier test prove there exist individual effects, which imply panel regression can get more efficient result than pooled OLS or cross-sectional regression. This implies the necessity of using panel regression method.Third, this research found out pooled OLS and some cross-sectional models of CSP model have mis-specified model problems McWilliams & Siegel(2000)had argued. However, no big changes haven't been observed in the coefficients of CSP and CFP variables in the panel regression, which also proves robustness of panel regression.Fourth, this research also examines the generalization issue of the results provided by a lot of existing papers'cross-sectional regression. In this paper, firm value and CSP variables consistently provide insignificant result in all the year-to-year models. Therefore, this research concludes the generalization issue is not a big problem. However, cross-sectional regression has the possibility of providing biased result, which also tells the superiority of using panel regression method.Last, with regard to control variables in the models, the results generally are the same as theoretical and empirical results of other researches.