Corporate Social Responsibility and the Value of Cash Holdings: Evidence from the Korean Stock Market

This study examines the impact of a company's performance in terms of corporate social responsibility (CSR) on investors' perceptions of corporate cash holdings in South Korea. The study postulates that, in emerging markets, such as South Korea, companies' CSR activities are often implemented strategically by the management. In emerging economies, companies' cash holdings are not subject to strict regulation of external capital providers. Hence, companies raise cash easily and manage cash holdings at their discretion, often resulting in agency problems between the management and shareholders. The study's results reveal that capital market investors negatively perceive the cash holdings of companies actively engaged in CSR. Investors do not expect the cash held by such companies to increase their corporate value. In other words, companies may use internal funds rather than debt for financing CSR activities.