Abstract

Contribution spending is one of the major corporate social responsibility activities and a decision making that is heavily influenced by management discretion. Thus, identifying what factors play an important role in contribution decision－making may provide a clue about its purpose. Extending to previous studies that peer firms critically affect various decisions such as investment and finance, this study investigates whether peer effects exist in terms of contribution spending. Specifically, we examine whether the contributions of the most reputable companies are related to those of peer firms belonging to the same industry (3－digit KSIC), and analyze the effect of peer firms’ contributions on corporate value. The most reputable companies are defined as All Star 30 firms selected annually by Korea Management Association Consulting, KMAC), consistent with prior studies. Empirical results using 9,242 firm－years from 2012 to 2017 show that contributions are the largest in the most reputable companies, followed by peers and non－peers and that donations of the most reputable companies have a significantly positive association with those of peer firms. This indicates that the contribution spending of the most reputable companies is an important factor in donation decision－making of peers, suggesting the existence of peer effects in terms of donation. We also analyze the impact of contributions on corporate value for the most reputable companies, peers, and non－peers subsample, respectively, and find that the first two groups have no significant results while donations of non－peers are positively related to firm value, corroborating the above peer effects. This study extends the literature by adding peer effects in terms of donation. Our results suggest that investors should pay attention to peer firms which mimic donation behavior of the most reputable companies because contributions of peers are not related to their firm value. The findings also indicate that regulatory authorities need to closely monitor corporate social responsibility activities considering the influence of leading firms, such as the most reputable companies, on their peers.

Keywords

• Contributions
• Peer Effects
• Most Reputable Companies
• Peer Firms
• Firm Value

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