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Related Party Transactions and Corporate Social Responsibility: Evidence from Korea

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  • Hyun Ah Kim

    (School of Industrial Management, Korea University of Technology & Education, Cheonan City 31253, Korea)

  • Nam Chul Jung

    (School of Business Administration, Hongik University, Seoul 04066, Korea)

Abstract

This study investigates whether related party transactions (RPTs) are associated with corporate social responsibility (CSR). Analyzing Korean public companies, we find that firms with more RPTs show poor CSR performance, especially in terms of soundness and fairness. The results are only maintained in firms with low ownership of controlling shareholders, supporting the conflict-of-interest view related to RPTs. Furthermore, we find that RPTs of firms held low by controlling shareholders do not contribute to firm value. Our results indicate that the expropriation of profits or resources through RPTs negatively affects the CSR decision of affiliations, which acts as a deterrence to long-term growth. In emerging markets where RPTs within a business group are prevalent, a government needs to restrict RPTs which are beneficial only for controlling shareholders and to encourage CSR activities of affiliations with low controlling ownership.

Suggested Citation

  • Hyun Ah Kim & Nam Chul Jung, 2022. "Related Party Transactions and Corporate Social Responsibility: Evidence from Korea," Sustainability, MDPI, vol. 14(12), pages 1-19, June.
    • Handle: RePEc:gam:jsusta:v:14:y:2022:i:12:p:7065-:d:835131
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    1. Oscar Licandro & José Luis Vázquez-Burguete & Luis Ortigueira & Patricia Correa, 2023. "Definition of Corporate Social Responsibility as a Management Philosophy Oriented towards the Management of Externalities: Proposal and Argumentation," Sustainability, MDPI, vol. 15(13), pages 1-18, July.

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