Environmental, social, and governance and efficiency management

Abstract

In knowledge-based society, a national innovation system is essential for strengthening national competitiveness and economic growth. To this end, Korea is continuously increasing R&D investment for the national innovation system, but the amount of R&D expenditure is lower than that of advanced countries. In addition, Korea has achieved rapid economic growth with an effectiveness-oriented strategy since 1950, but its limitations are gradually being revealed. In order for Korea to maintain its competitiveness in the global market, which has limitations in resources and population compared to other advanced countries, efficient use of limited resources is important. From this point of view, the importance of efficiency management is increasing. However, in efficiency management, the definition and measurement are not clear due to the ambiguous meaning of efficiency. Efficiency is defined in the dictionary as the ratio of output to input, but the meaning of efficiency varies depending on what inputs and outputs are set. Therefore, Data Envelopment Analysis (DEA) is used in various previous studies related to efficiency. DEA has the advantage of being able to measure the efficiency of a number of inputs and outputs without the assumption of a probabilistic relationship. However, the efficiency score calculated by DEA is a non-parametric value, and there is a limit to using it to analyze the efficiency according to the characteristics of a country or a company. Therefore, previous studies on efficiency using DEA mainly calculated the efficiency score of a specific group, compared the efficiency score by classifying groups according to characteristics, or analyzed the change in the efficiency score over time. In order to efficiency management, it is necessary to discover external factors that affect efficiency and analyze their influence. Therefore, this dissertation is composed of studies to investigate how the characteristics of a country or a company affect efficiency using DEA and Tobit regression. This dissertation consists of two chapters related to efficiency and external factors. The first chapter deals with factors influencing efficiency and efficiency at the national level, and the second chapter deals with factors affecting efficiency and efficiency at the corporate level. The first essay deals with the environmental and social risk factors and national R&D efficiency. The national innovation system is becoming more and more important in the knowledge-based society. However, the resources put into the national innovation system are not infinite. Therefore, interest in R&D efficiency, a method to effectively utilize limited resources to achieve innovation, is growing. There are many prior studies on R&D efficiency, but studies on external factors affecting R&D efficiency at the national level are still insufficient. In this study, the effect of environmental and social risk factors on national R&D efficiency was analyzed. For the analysis, data from the OECD and World Bank were used, and the analysis was conducted for EU countries. In addition, DEA and Tobit regression were used to confirm R&D efficiency and the influence of risk factors. The input of national R&D efficiency was R&D expenditure and the number of researchers, and the output was set as the number of papers and patents. Environmental risk factor consisted of air pollution, and social risk factor consisted of job insecurity. As a result of the analysis, it was found that the degree of air pollution has a positive effect on national R&D efficiency. It seems that R&D efficiency has increased based on long-term R&D investment due to strong regulations. Job insecurity also had a positive effect on national R&D efficiency. The higher the job insecurity, the higher the job efficiency by acting as a motivator for job retention. This study has academic implications as it extends research on national R&D efficiency to environmental and social external factors. In addition, the results of this study suggest that policy makers should systematically manage risk factors in consideration of their impact on performance. The second essay deals with corporate Environment, Social, and Governance (ESG) and management efficiency. As the economy and society grow and environmental pollution and social problems emerge, firm’s interest in ESG and sustainable management is increasing. Against this background, corporates are making efforts to disclose their ESG activities, and the government is moving to establish standards and obligations for corporate ESG disclosure. In order to give justification to ESG activities, academia is conducting research to reveal the effect of ESG activities on performance. However, while studies on the effectiveness of ESG are predominant, studies on ESG and management performance in terms of efficiency are still insignificant. Therefore, this study analyzed the effect of ESG on management efficiency. In addition, it was analyzed whether the relationship between ESG and management efficiency differs according to the firm size. For this, the ESG grade of the Korea Corporate Governance Service (KCGS), DEA, and Tobit regression were used. Total assets, total capital, number of employees were set as inputs for management efficiency, and sales and net income were set as outputs. As a result of the analysis, it was found that the higher the ESG grade, the lower the management efficiency. This negative (-) relationship was moderated in the positive (+) direction as the firm size increased. This means that a ESG activities can be positive for performance in terms of effectiveness, but can be negative in terms of efficiency. It also indicates that the impact of ESG may vary depending on the characteristics of the corporate. This study has academic implication in that it extends ESG-related research to the aspect of efficiency. In addition, it has practical implications that factors to consider are provided to policy makers and corporate decision makers. Through this dissertation, it was confirmed that the characteristics of countries and companies affect efficiency. This expanded efficiency-related research, which had been limited to efficiency measurement and comparison, to the influence of external factors. In particular, the research results on the environmental and social risk factors of the country and corporate ESG activities are of great significance in a situation where ESG has recently been attracting attention. It suggests that efficiency should be considered when setting national policies and corporate strategies, and that various external factors should be discovered and managed at the national and corporate level for efficiency management.