Corporate social responsibility (hereafter, CSR) refers to a firm’s management practicesfor the public good beyond legal requirements. In other words, CSR is a firm’s management decisions toward its multilevel stakeholders such as customers, suppliers, communities, employees, and investors. A number of firms have spent significant resources to make their policies socially responsible ones. Therefore, a firm’s CSR practices are one of the growing research areas in the literature and its relationship to a variety of corporate policies has been extensively examined. Our work is a part of this effort and investigates the relationship between a firm’s CSR practice and the degree of asymmetric information. To be specific, we test the empirical hypothesis developed by Cui, Jo, and Na (2018), which predicts a negative association of CSR with the level of asymmetric information. They mainly argue that CSR reports tend to deliver additional non-financialinformation to the financial markets and improve the transparency of firms, and thustend to reduce information asymmetrybetween managers and investors. We test this hypothesis in the Korean financial market, which is deliberately chosen for the following reasons. Most of all, a well-established measure of CSR exists in the Korean market. The Korean Corporate Governance Service provides a corporation’s environmental, social, and governance scores, which successfully proxy a firm’s level of engagement in CSR practice. Furthermore, the Korean financial market is one of the developing markets, which has received limited attention in the literature evaluating the role of CSR practices. Finally, the Korean market is well-known to have a unique set of large, family-owned conglomerates called chaebols, which have different firm characteristics from other non-chaebolaffiliates. This set of firms opens a venue to examine how firm characteristics affect the influence of CSR practice, which is an emerging research topic in the literature, such as Lin, Chan, and Dang (2015). For this purpose, we use a sample of publicly traded firms in the Korean market from 2011 to 2016. We adopt the sum of the environmental, social and governance score (hereafter, total ESG score) as a benchmark proxy variable for a firm’s engagement in CSR practices. Then, each category of the ESG score is also analyzed separately for robustness checks. We consider two widely accepted variables to represent the degree of information asymmetry. The first one is the dispersion of analyst forecasts, which tends to be larger in the face of a greater degree of information asymmetry. The second one is the price impact measure of Amihud (2002). The ordinary least square method is used to investigate how CSR activity affects the degree of information asymmetry. Our main empirical findings are as follows. In the examination of the entire sample, the total ESG score does not show a statistically significant relationship with the dispersion of analyst forecasts, while it has a significantly negative relationship with the price impact measure. Thelatter result is generally not well-aligned with the hypothesis of Cui et al. (2018), which predicts a significantly negative relationship. However, the total ESG score is negatively related with both measures of information asymmetry when we exclude chaebol affiliates from our sample. In particular, the coefficient on the ESG score is significantly negative for the sample of non-chaebol affiliates, but it is statistically insignificant for the sample of chaebol affiliates. The ESG score is negatively related to the price impact measure regardless of the inclusion or exclusion of chaebol affiliates in our examination. This finding appears to rely critically on the characteristics of chaebol affiliates. Chaebol affiliates are large and provide well-established financial information to the market, which are relatively free from asymmetric information, especially in terms of earnings forecasts. A large number of analysts have built up earnings forecasts for a long period of time due to the importance of chaebol affiliates in deciding the overall growth of the Korean economy. Thus, additional non-financial information from CSR practices may play a relatively insignificant role in shaping analyst forecasts, which results in a statistically insignificant CSR-asymmetric information relationship. On the other hand, the price impact measure is a type of illiquidity measure deciding the relationship between stock return and volume. The measure builds upon the perceptions of all investors, which does not rely on the analysis of specialized persons. Hence, the condition of chaebol affiliates does not have a specific channel that directly affects the measure, unlike the dispersion measure of analyst forecasts. Finally, we also find that our results are robust whether we examine the environmental, social and corporate governance score separately in the examination of information asymmetry. The price impact measure is negatively related to all three categories of CSR practices when we include or exclude the sample of chaebol affiliates. In contrast, the dispersion of analyst forecasts is negatively associated with each score only when we exclude chaebol affiliates from our sample. Our work mainly contributesto the literature by providing supporting evidence for the recent theory expecting a negative relationship between CSR and information asymmetry (Cui et al., 2018). The theory is empirically confirmed only in the U.S. financial market based on the examination of their own analysis. Our work provides additional evidence in the Korean financial market, which strengthens the validity of their theory. Furthermore, we add new dimensions to the literature examining the role of CSR practices in developing countries. Due to the absence of a reliable measure for CSR management practices, the role of CSR is examined in developing countries in a limited way (Miralles-Quirós, Miralles-Quirós, &Gonçalves, 2018). The topic itself is restricted in developing markets; most studies focus on CSR-performance or CSR-valuation relationships. However, our work examines the CSR-information asymmetry in developing markets, which confirms multiple roles of CSR practices even in developing markets. Finally, our work sheds new light on the relationship between CSR and firm characteristics. Lin et al. (2015) argue that each firm confronts different CSR requirements according to industry type, its region of operation and other firm characteristics. In fact, Miralles-Quirós et al. (2018) find that the effect of CSR on firm valuation differs between environmentally sensitive industries and non-sensitive industries. Our work shows that a firm’s affiliation to chaebols seriously changes the CSR-asymmetric information relationship, which argues for the significance of firm characteristic consideration in CSR literature. This paper proceeds as follows. Section 2 reviews the literature. Section 3 provides the description of data and our empirical strategies. Section 4 presents our main estimation results. Section 5is the conclusion.

Our testable hypothesis is in line with Cui et al. (2018). They develop an empirical hypothesis expecting a negative relationship between CSR and information asymmetry. Their hypothesis development relies on the reputation-building theory based on Freeman (1984) and Jo and Harjoto (2011). Freeman (1984) emphasizes that firms adopt CSR practices as a tool for better communication between managers and stakeholders. In fact, Jo and Harjoto (2011) show that CSR engagements reduce conflicts of interest among multiple stakeholders. A firm’s management practices toward socially responsible activities imply better communications between insiders and outsiders. Thus, a greater level of CSR practices indicates a lower level of information asymmetry between insiders and outsiders. This work is also closely related to the literature examining the role of CSR activity in the Korean financial market. However, most of the studies focus on the financial performance and valuation effect of CSR practices. For example, Choi, Kwak, and Choe (2010) document that CSR activities positively affect financial performance based on the stakeholder-weighted CSR index. Han, Kim, and Yu (2016) analyze nonlinear relationships between CSR and the financial performance of Korean firms based on ESG disclosure scores. Kim and Wee (2011) and Jang and Choi (2010) examine the CSR-performance relationship based on the index published by the Korea Economic Justice Institute. Our work is also related to a branch of corporate governance literature that examineschaebols, the large family-owned business conglomerates in Korea. The literature has paid substantial attention to the owner risk problems in chaebolsaffiliates. For instance, their weak governance structures and tunneling problems have been extensively examined in the literature (Baek, Kang, & Lee, 2004; Bae, Kang, & Kim, 2006). From the perspective of CSR, chaebol affiliatesare widely expected to face greater requirements for CSR practices because these groups have achieved rapid growth of their firms based on extensive government and public support (Na, Hong, & An 2015) Finally, recent work highlights firm-level heterogeneity in determining the effect of CSR practices on corporate policies. Lin et al. (2015) emphasize that each firm faces distinctive CSR requirements in accordance with the industry type, its region of operation and other firm characteristics. Miralles-Quirós et al. (2018) show how a group of environmentally sensitive firms change the valuation effect of CSR in Brazilian financial markets. These results imply that the effect of CSR on corporate policies might differ depending on various firm characteristics.