(The) relationship between corporate sustainability performance and corporate financial performance

Abstract

This dissertation focuses on investigating the relationship between corporate sustainability performance and firm’s financial performance, and exploring which factors affect firm’s CSR participation. Thus, this dissertation deal with two primary pillars: (1) The effect on firm’s financial performance of corporate sustainability performance, and (2) The factor affecting firm’s CSR participation.

The first essay investigates that based on Ohlson’s residual income model, the effect of corporate sustainability performance on financial performance is examined by utilizing the newly developed Korea Sustainability Index as the proxy for corporate sustainability performance. It is found that the firm’s corporate sustainability performance is positively associated with its financial performance, and this positive association is more sensitive in information and communications technology (ICT) industry than non-ICT firms. Furthermore, this moderating effect is mainly attributable to the service sector in the ICT industry. These effects are particularly prominent in the case of smaller low-leveraged firms.

The second essay explores that the relationship between firm’s CSR participation and firm specific characteristics, considering industry specific characteristics for US firms using MSCI ESG data (former Kinder, Lydenberg, Domini). Hypotheses are developed using stakeholder theory. Results show that firms with large, profitable, resource-rich, and low leverage ratio and low growth rate are more likely to participate in CSR activities, as expected. In addition, the effect of industry specific characteristics on firm’s CSR participation is analyzed empirically. Results indicate that there exist differences of firm’s CSR participation depending on the industry in which the firm included. Furthermore, these differences affect the effect of firm specific characteristics on CSR participation.