In today's global economy, corporate social responsibility (CSR) is a core component of corporate strategy. However, previous literature provides mixed results on the relationship between corporate social responsibility and corporate financial performance (CFP). This study was motivated by the lack of consistent evidence and the relative paucity of researches devoted to this topic under Korean context. We investigate the relation between the level of corporate social responsibility and corporate financial performance using the sample of 433 firm-years between 2006 and 2008. The level of corporate social responsibility was measured using Equal-weighted CSR index and Stakeholder-weighted CSR index developed by Akpinar et al.(2008). The corporate financial performance was measured using ROA, ROE, Tobin's Q.
We have empirically proven that CSR with which stakeholders are prioritized, can provide a positive impact upon corporate financial performance whereas CSR without it might not be able to provide such a thing. Furthermore, after controlling for other factors affecting corporate financial performance, CSR with which stakeholders are priortized can still be used as a signal for good management. This result implies that it is important for firms to realize which aspects of social responsibility are more important to its primary stakeholders who set expectations of, experience and evaluate the firm's actions.