외국인소유주의 사회적 책임활동에 대한 통제능력 = The Monitoring Power of Foreign Ownership on Corporate Social Responsibility: Evidence from Korea

다국어 초록 (Multilingual Abstract)

Today`s corporations are aware of the importance of maintaining a balance between social responsibility and their pursuit of financial goals in order to ensure their continued survival and prosperity. Therefore, corporate social responsibility (CSR) is a core component of corporate strategy. Moreover, as a result of recent initiatives of institutional investors, particularly those based in Europe and North America, the socially responsible investment (SRI) movement has spread rapidly throughout global financial markets, with an eye toward directing investments in socially responsible businesses that more successfully fulfill the public`s demands. However, Korean controlling shareholders have generally evidenced a negative propensity toward CSR practices, as they tend to increase private benefits and enhance the growth of chaebol group. In this case, the increase in CSR activities can be connected to a reduction in firm value, which can expropriate the advantages of outside minority shareholders. Minority shareholders may be regarded as a source of motivation for controlling CSR activity, and thus, they may play an important role in CSR. In the Korea Exchange (KRX), domestic institutional investors (as outside minority shareholders) typically do not exert effective monitoring power over management activity because they tend to engage in short-term investment activity, and thus, foreign investors are more likely to exercise effective monitoring power than domestic institutional investors. For this reason, foreign investors are likely to have considerable influence on CSR activity. In this regard, the present study addresses this question by focusing on foreign investors as outside minority shareholders. The results of this study indicate that foreign investors tend to invest in firms with better CSR practices and that such firms tend to be managed on CSR practices. In addition, in terms of firms with no foreign blockholders, the results demonstrate that foreign investors prefer those firms with better CSR practices while pursuing management control. However, in terms of firms with foreign blockholders, the results demonstrate that foreign investors prefer firms with better CSR practices and exert control over controlling shareholders through CSR practices. These results imply that the control effects of foreign shareholders on CSR activities vary according to their share in a particular firm (i.e., whether they hold at least a 5% stake in the target firm) because foreign blockholders with at least a 5% ownership stake are often able to influence the company with the voting rights awarded with their holding. Further, the results indicate that strategic investors are motivated by nonfinancial goals such as obtaining control rights and developing a sustainable competitive advantage and are thus more likely to be motivated to control CSR activity than financial investors. Also, strategic investors exert effective control over controlling shareholders` CSR activities in terms of soundness, environmental performance, and contributions to economic development. On the other hand, financial investors exert effective control over controlling shareholders` CSR activities in terms of its soundness and contribution to economic development. In sum, this study`s results indicate that the effects of foreign investors on the seven sub-dimensions of CSR vary according to their acquisition purpose. Additionally, the results suggest that firms` CSR activities are influenced by the types of their largest shareholders, that the types of institutional investors have no significant on CSR practices. This study is, to the best of our knowledge, the first to confirm the interactive effects on the relationship between foreign ownership and CSR using a regular simultaneous equation system. Additionally, this study, as one of the few that relates to foreign ownership and CSR, is specifically targeted toward analyses of the relationship between CSR and foreign ownership according to the existence of foreign blockholders holding at least a 5% of shares in an individual firm. The results of this study make the following contributions to the current body of knowledge. First, in Korea, through the effects of governance, these findings may prove helpful to the social responsibility decision-making processes of companies and regulators. Second, our findings may prove helpful in allocating resources for firms that practice social responsibility activities. In particular, the results of this study may contribute to the disclosure policy of CSR for SRI (socially responsible investment) in the capital market, in the research field of accounting for measurement and disclosure.