Corporate philanthropy and listing status of chaebol affiliates

Abstract

This paper examines whether the business group affiliation and/or listing status of firms af-fect the amount of corporate charitable contributions (CC). Chen et al. (2007) argue that firms consider corporate philanthropic behavior as a strategic way to meet the demand for high level of corporate social responsibility (CSR). Accordingly, I predict that public firms and/or business group affiliates which are under the higher level of public scrutiny and po-litical costs are more likely to pay the larger amounts of CC than private firms and/or non-affiliates under the relatively lower level of those pressures. Using a large sample of both publicly-traded and privately-held firms in Korea, I find that public firms pay more CC than private firms and group affiliates pay more CC than non-affiliates. More interestingly, how-ever, I find that, within the same business group, public firms tend to pay more CC than private firms, indicating a possibility of the strategic allocation of CC within the business group. That is, the results imply that controlling shareholders allocate excessive amount of CC to public affiliates through the tunneling process. This paper is the first to document the existence of tunneling of corporate philanthropic spending within Chaebols.