Corporate Social and Financial Performance: The Role of Firm Life Cycle in Business Groups

Drawing on agency theory concerning corporate social responsibility (CSR) activities, this study investigates the relationship between corporate social performance (CSP) and corporate financial performance (CFP) at each stage of the firm life cycle (FLC). It also verifies how this relationship is affected by large business groups. This study shows a significant positive relationship between CSP and CFP at the growth and mature stages. This relationship is more pronounced in mature firms than in growth firms. This result indicates that CSR activities increase CFP in the long-term perspective by mitigating the agency problem. Furthermore, at the growth and mature stages, the positive relationship between CSP and CFP changed to be negative in firms of large business groups. This result indicates that the degree to which CSP leads to an increase in CFP is more weakened in large business groups where the agency problem between controlling and other shareholders can be more severe. Finally, this study contributes to prior research by presenting consistent results on the relationship between CSP and CFP using the FLC and large business groups.