The Influence of Corporate Social Responsibility, Business Diversification, and Company Size upon Company Value

Abstract

The purpose of a company is to maximize company value, which is synonymous to increasing the shareholders' wealth. There are some variables that could determine company value such as corporate social responsibility (CSR), diversification of business, and company size. This study examines the influence of corporate social responsibility (CSR), diversification of business, and size of the company upon the value of manufacturing companies listed on the Indonesian Stock Exchange (IDX). The research population is all manufacturing companies listed on IDX within the period 2011-2014. Based on some purposive sampling criteria, 110 company-year observations were chosen as the sample for this study. This study used a regression model, which found that CSR had an insignificant effect in influencing campany value. Diversification, as measured in the Herfindahl index by sales, had a positive and significant effect on company value, but the number of business segments had an insignificant impact upon company value. Finally, company size, which was measured by the number of assets, insignificantly affected company value while the market value of equity positively and significantly influenced company value. This implied that investors trust market value more than historical data. This is because market measurements such as the market value of equity could reflect a company's prospects in the future while accounting-based measures only provide historical data on the company. Additionally, the government should allow companies to grow in size and to diversify into related businesses.

Does Corporate Governance Influence Value Creation : Assessing the Mediating Role of CSR and Tax Avoidance

“…The study done by Mangoting et al, (2019), Dao et al, (2020) & Mahrani & Soewarno (2018) stated that CSR implementation has a positive impact on a company's value creation; higher frequency of CSR activities lead to continues improvement of company value. However, another study by Masdupi & Yulius (2017) & Hafez, (2016 found a different result, suggesting that CSR has no influence on company value. Further, Crisóstomo et al, (2011) found that CSR disclosure instead has a negative impact on a company's value creation, which means higher level of CSR disclosure could decrease company value.…”

Does BOC`'s Characteristics Moderate The Effect of Corporate Social Responsibility on Performance?

“…Stakeholder theory explains that companies do not only focus on profits or the interests of the company itself (Masdupi & Yulius, 2017), but sustainability (Lindawati & Puspita, 2015). Stakeholder theory explains that CSR can meet stakeholder demands so that it can create a good reputation for the company (Alipour et al, 2019;Fiandrino et al, 2019;Radhouane et al, 2018;Xiao et al, 2018).…”

“…If given a cycle, the company does not carry out business activities that are oriented only to profit but also needs to provide reciprocal benefits to stakeholders for operational sustainability (Hardi & Chairina, 2019;Masdupi & Yulius, 2017) which is following stakeholder theory (Wicks & Harrison, 2017;Zakhem & Palmer, 2017). Differences in interests between stakeholders and the company can arise as a result of the incompatibility of the company's operating activities with the expectations of stakeholders so that pressure arises from stakeholders on the company, so the purpose of corporate CSR is to mitigate a gap between them (Benn et al, 2016;Lindawati & Puspita, 2015).…”

“…The negative implication is that the company is in a crisis of legitimacy (Gray et al, 1995) where the worst situation is that the community has the potential to stop operations (Deegan & Rankin, 1997;O'Donovan, 2002) and disrupt performance (Arvidsson, 2010). Thus, CSR is used by companies to build a corporate image and gain support from stakeholders (Guo et al, 2019;Masdupi & Yulius, 2017) with the motive of contributing to environmental improvement over the use of resources (Bajic & Yurtoglu, 2018;Lee et al, 2018). The positive implication is that companies avoid potential challenges and threats from external sources (Nyeadi et al, 2018) where CSR directs companies to achieve sustainable development (Nirino et al, 2020).…”

“…Meanwhile, the research researched by Feng & Glenn Kreuze (2017) ; Buallay, Fadel, et al (2020) ; Buallay, Kukreja, et al (2020) found the effect of CSR on company performance was significantly negative. Meanwhile, the research studied by Janamrung & Issarawornrawanich (2015) ; Masdupi & Yulius (2017) ; Khlif et al (2015) ; Velte (2017) ; Lee et al (2018) ; Atan et al (2018) ; Horn et al (2018) ; Khlif et al (2015) ; Zhang & Jung (2020) ; Farman & B Setyo,(2018) ; M. S. Hermawan & Mulyawan, (2014) found that the effect of CSR on company performance was not significant. Our difference with previous research is that we focus on companies mining that refers to regulatory compliance in Indonesia.…”