A Conglomerate’s Effort for Co-Prospering with Its Subcontractors and Firm Value: Evidence from Korea

Abstract

Shared growth effort, which is also known as mutual growth, has emerged as one of the most important keywords in Korean economy. This study examines whether a conglomerate’s shared growth effort evaluated by the Shared Growth Commission is valued by market investors. Using our full sample, we find that firms participating in shared growth evaluation have a higher firm value. The results from the full sample show that firm’s effort on shared growth is rewarded in the Korean capital market. However, after matching firms by size of sales and return on assets to better control for firm characteristics, we find that neither the participation nor a higher (lower) rating of the shared growth evaluation is associated with firm value. This implies that the result from the full sample may be capturing firm characteristics, instead of the effects of shared growth effort, thus market investors do not consider conglomerate’s shared growth effort as a value-enhancing strategy. Using a recently introduced shared-growth index, the findings in our study provide preliminary but important evidence on how creating shared value (CSV) is related to firm value.

The impact of creating shared value on hotels online reputation

“…CSV has proved to be related to company value (Choi, Ko, & Jung, 2018). Specifically, in the tourism industry, several authors have linked specific hotel practices to CSV.…”

Sustainable development through Corporative Social Responsability, Corporative Philanthropy and Creating Shared Value

“…[35] have proved that a CSV strategy helps improving business competitiveness, underlining the importance of stakeholders' satisfaction in relation with this improvement. CSV also has a significant effect on the customer's behavioral intention [36] and finds benefit in the capital market [37]. From the point of view of sustainability at regional level, it has been demonstrated that the introduction of CSV strategies, resulted in the economic development of rural areas in the northeast of India and triggered the growth of women's crafting potential in the area [15].…”

Effect of buyer dependency of subcontracting SMEs on R&D investment

“…, 2016; Patatoukas, 2012) on the impact of buyer dominance over suppliers. When a buyer negotiates based on his/her strong market power, the supplier is forced to give up its incentive and accept lower payments for parts and materials (Choi et al. , 2018).…”

“…Irvine et al, 2016;Patatoukas, 2012) on the impact of buyer dominance over suppliers. When a buyer negotiates based on his/her strong market power, the supplier is forced to give up its incentive and accept lower payments for parts and materials (Choi et al, 2018). Hence, risk-sharing benefits are less available for suppliers if there is a significant imbalance between buyers and suppliers (Hingley, 2005;Rokkan and Haugland, 2002).…”

“…Simultaneously, such contracts have been viewed as a channel through which large firms could exert economic power based on subcontracting SMEs’ higher reliance on the subcontracting relationship (Hancké, 1998). Countries continue to establish and maintain sustainable supply chains to encourage mutual growth of large buyers and small suppliers and respond to social pressure to achieve power balance in the business ecosystem (Choi et al. , 2018).…”