Corporate Social Responsibility and Post Earnings Announcement Drift: Evidence from Korea

To promote corporate social responsibility (CSR) in emerging markets such as South Korea to the level of developed nations, support from capital market investors is necessary. That is, CSR activities expand if capital market investors actively invest in companies that pursue such activities. This study thus analyzes the influence of the level of CSR activities on the post-earnings-announcement drift (PEAD) of publicly listed companies in South Korea, given the need to analyze the relationship between capital markets and CSR, which is part of sustainability management strategies. A sample of Korean firms listed on the Korean Stock Exchange from 2014 to 2018 was used for the regression analysis. The financial and stock return data were extracted from the KIS-Value database and CSR activities data were collected from the Korea Economic Justice Institute (KEJI) Index. The empirical analysis determined that more inactive companies in terms of CSR exhibited greater PEAD magnitude. Furthermore, high information asymmetry was found to further increase the magnitude of PEAD. These results indicate that investors cannot make swift investment decisions because of their low confidence in the information disclosed by inactive CSR companies; as a result, earnings information is slowly reflected in the stock prices of the period following disclosure. These findings suggest that CSR plays an important role in boosting investor confidence in corporate earnings information.