Incentives for Korean Business Groups to Engage in Social Responsibility Activities

Most previous studies claim that business groups engage in social responsibility activities with opportunistic goals. However, no study has verified that there are other motives when business groups efficiently use resources for social responsibility. The purpose of this study is to verify the effect of managers’ effective social responsibility activities on performance-pay sensitivity and then analyze how this relationship differs depending on whether they belong to a business group, thereby verifying what motives business group managers have for engaging in social responsibility activities. This study showed that financial performance had a significant positive relationship with management compensation. This result shows that financial performance plays a decisive role in increasing management compensation. This relationship was strengthened in companies that effectively engaged in social responsibility activities. In other words, as social responsibility performance increases effectively, the reliability of financial performance also increases, which increases the weight reflected in management compensation. Furthermore, a significant negative relationship was found between the three-way interaction variables (financial performance, effective social responsibility, and business groups) and management compensation. This result suggests that the social responsibility activities of managers belonging to large business groups are due to passive ethical or legal motivation rather than profit-oriented strategic objectives. In other words, the social responsibility performance of a company belonging to a large business group will increase corporate value in the long term, but it will not increase short-term performance-pay sensitivity. This study showed that not all business groups engage in social responsibility activities for opportunistic purposes through the efficiency of corporate resource use.