Yan-Leung Cheung
Dean, School of Business
Hong Kong Baptist University
Hong Kong
Yan Leung CHEUNG, Weiqiang TAN, Hee-Joon AHN & Zheng ZHANG (2010), Journal of Business Ethics 92:401-413

Overview
• Introduction
• Literature review
• Data and methodology
• Empirical results
• Concluding remarks
• Recent development
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Introduction
• Corporate social responsibility (CSR) has been attracting worldwide attention.
• For the firm, The field of CSR can be summarized as the management of potential conflicts of interest between different stakeholders with respect to economic, environmental, social, and ethical issues.
• The objective of this study is to examine the relation between CSR and financial performance in Asian Emerging Markets (AEMs).
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Introduction
• There is growing interest in socially responsible investment (SRI) funds that have an explicit mandate to invest in firms with good social responsibility.
• The question for firms is whether ‘doinggood’ will lead to ‘doing-well’ in the market.
In other words, will the market reward firms with good corporate social responsibility practices?
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Introduction
• This study has three aims:
– Based on the Credit Lyonnais Securities Asia (CLSA) corporate social responsibility score, we compare the
CSR practices of the major firms listed in AEMs over a period of three years, from 2001-2004.
– We examine the relation between the CSR score and market valuation to see whether good CSR practices are recognized and rewarded by investors.
– We examine the impact of change in CSR on market valuation.
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Introduction
• Our findings:
– Our empirical results show that the CSR practices of
Asian listed companies have improved during the sample period, with the exception of Malaysia.
– We find that firms with better CSR practices, as measured by their CSR score, tend to have a higher market valuation.
– We also find a positive relation between the change in
CSR scores and market-adjusted returns. This implies that AEM firms are rewarded for improvement in their CSR performance.
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Literature review
• Conflicting view:
– There are additional costs associated with complying with higher social and environmental standards. This will, in turn, translate into higher operating costs and lower profitability.
– Strong social and environmental policies could enhance a firm’s reputation and brand. This could further promote customer loyalty, reduce operational risk, and lead to higher profitability .
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Literature review
• Empirical studies of the relationship between
CSR and financial performance can be broadly divided into two types:
– Employs event study methodologies to measure abnormal responses in the market when firms engage in either socially responsible on irresponsible acts
– Examines the relationship between measures of CSR and long-term financial performance
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Literature review
• There is little evidence obtained for AEMs. As the region gains in importance in terms of economic development, there should be a need for AEM firms to strike a balance among priorities of different stakeholders.
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Data and methodology
• CLSA issued a report on corporate governance
(CG) practices in emerging markets that provided scores on the quality of governance of firms in those markets. Firms were selected based on size (large) and investor interest (high).
• 57 questions into 7 categories; discipline, transparency, independency, accountability, responsibility, fairness, and social responsibility.
• CLSA contains six questions which attempt to broadly measure a firm’s social responsibility.
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Data and methodology
• The following is a summary of what CLSA analysts take to constitute good corporate social responsibility in emerging markets:
– Explicit policy emphasizing strict ethical behavior
– Not employing the under-aged
– Explicit equal employment policy
– Adherence to specified industry guidelines on sourcing of materials
– Explicit policy on environmental responsibility
– Abstaining from countries where leaders lack
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Data and methodology
• To make sure that the results are not driven by firm heterogeneity, we add control variables that cover firm characteristics including firm size, debt-equity ratio, return on equity, current asset ratio, and sales growth rate.
• The data used include accounting information and firm performance data which are obtained from DataStream. All data are matched to the appropriate fiscal year.
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Empirical results
• Descriptive statistics
Country/
Region
Full Sample
N Mean
China
Hong Kong
India
Indonesia
Korea
Malaysia
132
139
215
69
101
140
67.17
76.50
87.90
58.93
85.47
65.72
Philippines 49 79.92
Singapore
Taiwan
Thailand
Total
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124
144
75
1188
60.88
77.08
68.79
74.09
38
79
18
24
47
N
2001
Mean
25 55.33
65.79
82.91
37.03
66.65
59.58
20 78.34
43 54.27
47 74.81
20 65.02
361 67.08
41
69
17
28
46
N
2002
Mean
45 56.67
70.73
85.50
38.22
80.95
71.02
13 80.78
43 61.62
49 69.38
21 66.30
372 69.96
60
67
34
49
47
N
2004
Mean
62 79.56
87.22
96.27
80.88
97.28
66.68
16 81.22
38 67.54
48 87.15
34 72.55
455 83.04
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Empirical results
Regressions of corporate valuation on CSR scores
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Regressions of corporate valuation in year t+1 on CSR scores
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Regression of the buy-and-hold market-adjusted return on change in CSR scores
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Concluding remarks
• Based on the CLSA corporate social responsibility score, this study assesses the corporate social responsibility
(CSR) performance of firms in Asian Emerging Markets
(AEMs).
• This study documents that there is an improving trend in
CSR performance among AEM firms.
• The market rewards firms that are socially responsible and also those that show improvement in CSR performance.
• The results show that Asian firms are aware of the importance of CSR and there is a gradual improvement in performance.
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Recent Development
• Social responsibility on the rise in Asia CSR, if defined by the publication of CSR reports appears to be on the rise in Asia.

Recent Development
• In Asia the reporting CSR activities falls into two key camps, mandated or voluntary. But the whole thing is still mostly voluntary.
– Mandated: e.g., Malaysia, Indonesia
– Voluntary: e.g., China, Japan, Hong Kong, Thailand
• In December 2009, China’s National People’s
Congress approved a new torts law that will increase liabilities for environmental pollution.
This is another step forward in China’s environmental protection movement.

Recent Development
• In August 2009, Shanghai Stock Exchange launched the Responsibility Index , selecting top-
100 socially responsible companies on the stock exchange.
• Thailand Exchange has begun to give awards to listed companies for outstanding CSR projects and established a CSR Promotion Fund at the end of 2008.

Recent Development
• The Chinese equity market is in its infancy compared with developed markets. A question is whether the market cares about CSR in China.
Although CSR has had a slow start in China, it is gaining a foothold. The first Chinese SRI fund was launched in 2008. “Mainland investors to get SRI option”, China Daily on 19 March 2008.
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SRI in China
• Shanghai-based Industrial Fund
Management Co Ltd issued its socially responsible investment (SRI) fund (code:
340007) on March 2008.
• No less than 80 percent of the fund's equity investment should focus on social responsibility, according to its prospectus.
• Industrial Fund selects companies according to four criteria - economic responsibility, responsibility for sustainable development, legal responsibility, and moral responsibility.

SRI in China
Figure 1 The performance of SRI (code: 340007)
— SRI — market index

Thank you!