Charitable Donations for Corporate Sustainability: Exploring the Impact on the Firm Value of Korean Game Companies

Abstract

The game industry in Korea is gaining significant attention as a high-value-added sector, representing the largest share of Korean cultural content exports. However, game companies are facing criticism due to their limited involvement in social contributions, despite the various issues caused by games. Addressing these criticisms of Korean game companies is vital, as it poses a notable risk to their sustainability. This study aims to examine whether game companies’ charitable donation activities can serve as a viable solution. Accordingly, our study empirically investigates whether Korean game companies indeed contribute less to charitable causes and how their charitable donations impact firm value. Using financial data of companies listed on the Korean stock market from 2011 to 2019, we compare the scale of charitable donations between companies in the gaming industry and those in other industries. Moreover, we investigate whether charitable donations by game companies contribute to increasing firm value. Our findings reveal that Korean game companies tend to donate less to charity compared to other companies. However, we also identify a positive association between charitable donations and firm value, which is particularly pronounced within the game industry. This study illuminates the importance of charitable donations as a strategic tool for enhancing firm value and emphasizes the role of game companies in promoting societal welfare and sustainable management.

Keywords

charitable donations corporate sustainability game companies firm value corporate social responsibilities

Introduction

In the early 2000s, several online games start-ups were established in Korea, and they achieved remarkable growth, benefiting from the loyalty of Korean game users and extensive government support. However, these companies have been criticized for relatively low level of corporate social responsibility compared to other firms. This criticism has been exacerbated by long-standing negative perceptions that games hinder academic pursuits and cause violence, compounded with recent issues related to probability-based items that have transformed into social and political concerns. Under these circumstances, Korean game companies may need to build a positive image and a strong reputation and help to mitigate the social issues raised by them by carrying out socially responsible activities including charitable donations. However, no clear results have been given as to whether charitable donation activities actually help corporate sustainability. Therefore, it is believed that Korean game companies have been passive in charitable donation activities that incur costs.

Extensive research has been conducted on corporate social responsibility (hereafter, “CSR”) within the field of business administration (Bruna & Lahouel, 2022; Cho et al., 2019; Lopatta et al., 2017; McGuire et al., 1988; Waddock & Graves, 1997). The concept of CSR has expanded to include environmental, social responsibility, and governance (hereafter, “ESG”), and the significance of this has been increasingly emphasized worldwide, particularly in the wake of the global COVID-19 pandemic (Wu & Juvyns, 2020). This expansion indicates that CSR activities can now have an even greater impact on corporate sustainability. While charitable donations can be viewed as a component of both CSR and ESG, we believe that such donations primarily reflect CSR rather than ESG for the following reasons. Charitable donations are traditionally viewed as a key component of CSR, seen as voluntary contributions to social good (Godfrey, 2005). However, in the context of ESG, donations represent part of the firm’s social responsibilities and can influence a firm’s ESG rating, especially under the “Social” category, but they would be considered alongside other factors like employee welfare, diversity, and community engagement. In fact, engaging in CSR can help companies cultivate positive images and establish strong reputations among market participants, leading to increased firm value (C. Y. Chung, et al., 2018; Du et al., 2010; Schuler, 2006; Servaes & Tamayo, 2013; Rhee, Woo, et al., 2021). Earlier studies, rooted in neoclassical theory, suggested that CSR activities have a negative influence on financial performance (Fisher-Vanden & Thorburn, 2011; Jacobs et al., 2010; Lyon et al., 2013; Vance, 1975). They argued that CSR activities are not financially beneficial enough to outweigh the associated costs and that maximizing shareholders’ profits should take precedence over philanthropy.

However, stakeholder theory presented a different perspective, proposing that companies can achieve sustainable growth through CSR activities, while also fostering more efficient contractual relationships(Fatemi, 2013; Freeman, 1984; Jones, 1995). Notably, Kramer and Porter (2006) contended that CSR activities can serve as sources of opportunity, innovation, and competitive advantage, yielding benefits that surpass the costs incurred. Consequently, empirical studies examined whether CSR activities have a positive or negative impact on a company’s financial performance, but the results are somewhat inconclusive. Nevertheless, with the recent emphasis on ESG, CSR activities are reported as an important factor in creating sustainable value for companies (Rhee, Jung, et al., 2021; Rhee et al., 2022). This is especially true for companies operating in regulated industries or those that have experienced adverse events, as they strive to mitigate negative perceptions and enhance their overall reputation through charitable donations.

This study aims to empirically examine whether philanthropic activities can effectively reduce the negative perception of game companies, contributing to their firm value. We employ corporate giving to capture the firm’s socially responsible activities, as it can serve as prominent examples of CSR activities undertaken by companies and garner immediate attention through news media channels. Prior studies demonstrate that the firm’s charitable donations are used as effective strategies to improve firm value (Liang & Renneboog, 2017). Also, unlike other CSR activities, charitable donations can be easily quantified, providing a tangible metric that can be compared across firms. Although corporate giving is often considered a key component of a firm’s CSR and ESG efforts, it may not reflect the full breadth of CSR or ESG activities for the following reasons. First, charitable donations only address the social side, while CSR and ESG activities are multi-dimensional frameworks. Second, some firms use donations with opportunistic motives, to make them look socially responsible without addressing more critical issues. For example, Godfrey (2005) show that firms may use corporate philanthropy to buffer firms against negative events or controversies rather than out of genuine social responsibility.

We exclusively focus on the Korean game industry for the following reasons. First, the game industry in Korea has experienced significant growth and has become globally competitive, maintaining its position as the fourth largest in the world in terms of global market share (2023 Game Industries White Paper, 2024). Many game start-ups, such as Nexon, Netmarble, and Wemade, founded in the early 2000s have grown into sizable companies and have shown strong financial performance even during the COVID-19 period (Korea Creative Content Agency, 2022; News Lock, 2025). Examining the role of corporate donations in such a dynamic industry could provide insights into how philanthropic efforts impact firm value in a high-growth, tech-driven sector. Second, despite the remarkable growth, the Korean game industry has long been negatively perceived in Korean society, due to concerns about addiction, controversial contents, mental health, etc. As a result, the game shutdown system was implemented between 2012 and 2021, which imposed regulation on online game usage for individuals under the age of 16 from midnight to 6 a.m. (Choi et al., 2018). Although several game companies have established cultural foundations and organizations to restore their reputation, Korean game industries have been criticized for not actively engaging in socially desirable activities. Therefore, examining whether corporate giving helps game companies to enhance their public image is an empirical question.

To examine the relationship between charitable donation levels and firm value, we conducted empirical analyses on Korean listed companies. The study utilized a dataset comprising 1,429 firm-year observations from 2011 to 2019. The findings of the empirical analysis can be summarized as follows. Firstly, the game industry in Korea demonstrated a relatively lower level of charitable donations compared to other industries based on the ratio of donation expenses to total assets. This empirical result supports the claim that Korean game companies have been insufficient in their engagement in social responsibility activities through charitable donations. Secondly, we found a significantly positive association between the charitable donation levels of game companies and their firm value. This association is stronger for game companies than for companies in other industries, implying that the charitable donation activities of game companies play a more prominent and favorable role in enhancing firm value compared to companies in other industries.

Our study has the following contributions. First, the findings of this study contribute to the existing literature by examining the influence of charitable donations on firm value within the context of Korean game companies. We empirically demonstrate a positive relationship between charitable donations and firm value, despite some criticisms regarding the sincerity of CSR activities within this sector. Second, our findings have practical implications by documenting the relatively lower level of charitable donations in Korean game companies compared to other industries, emphasizing the need for these companies to engage in more proactive and substantial philanthropic endeavors. By doing so, game companies can enhance their firm value, going beyond the mere reduction of negative perceptions associated with the gaming industry in Korean society.

This paper is organized as follows. Section “Background, Prior Literature and Hypothesis Development” discusses the prior literature and develops the hypothesis. Section “Research Methodology” provides the research method and sample selection criteria. Section “Empirical Results” documents the empirical results from the empirical model estimation. Section “Conclusions and Discussions” concludes the study.

Background, Prior Literature and Hypothesis Development

Background of the Korean Game Industry

The size of the game industry has shown a steady increase worldwide over the past decade. The game market, which was worth $93.5 billion in 2016, increased to $129.7 billion in 2019, and the mobile game market saw rapid growth from 2020 amid the COVID-19 pandemic. The game industry is expected to show continuous growth as games utilizing ICT (Information and Communications Technology) technologies such as metaverse and blockchain and games with integrated cross-platform capabilities emerge. According to the report by PwC, the size of the global game market is expected to reach nearly $2,000 billion by 2025. Korea’s game industry has also grown significantly in recent years, with total sales expected to approach KRW 30 trillion (approximately USD 23.8 billion) in 2025, showing an average annual growth rate of about 8%. The Korean game market is characterized by a high usage rate of online games, especially mobile games. In 2021, mobile games were the most widely used platform for Korean gamers with an 84.2% usage rate, followed by PC games (54.2%), console games (17.9%), and arcade games (9.4%; Korea Creative Content Agency, 2022; 2022 Game Industries White Paper, 2023;). In comparison, in the United States the usage rate of mobile games was 70% while that of console games was nearly 52% (Entertainment Software Association, 2022).

The success of online games has generated substantial revenue for Korean game companies. The size of the game market, which was KRW 9,753 billion (approximately USD 7.8 billion) in 2012, increased to KRW 20, 991 billion (approximately USD 16.7 billion) in 2021. The historical figures of the Korean game market are depicted in Figure 1. In addition, the market shares of Korean games in the global game market reached 7.6% in 2021, ranking fourth following the United States (22%), China (20.4%), and Japan (10.3%; PWC, 2023). According to Forbes, 8 of the 50 richest people in Korea, and 7 of the top 30, were identified as game company executives as of 2022 (Forbes, 2025).

Figure 1.

This figure depicts annual total revenue (KRW billion) of game companies in Korea for the period 2012 to 2021, as well as the annual growth rate, calculated as the difference between prior year and current year total revenue divided by prior year total revenue (Korea Creative Content Agency, 2022).

However, the advancement of the gaming industry inevitably entails various societal issues. For instance, numerous studies focusing on the United States have provided evidence that an increase in time devoted to gaming is associated with elevated levels of depression (Lemola et al., 2011), diminished academic achievements (Anand, 2007), and escalated alcohol consumption (Ream et al., 2011). In Korea, these issues are compounded by recent concerns arising from probability-based items and the lack of communication between game companies and users. Probability-based items, so-called “random box,” refer to premium items acquired through random in-game chances, and these items induce excessive spending because the probability of obtaining high-performance items is low (Park, 2017). As specific probability information is not disclosed, information asymmetry and consumer protection issues have arisen. As a result, the need for legal regulation has been raised in the Korean gaming industry. As the social and political debate intensified, Korean game companies voluntarily began disclosure of probability information in 2021. However, there still exist a considerable number of companies that do not follow self-regulation, and on top of that, the reliability of probability information voluntarily disclosed by game companies is not guaranteed.

In 2021, concerns regarding the unilateral communication of game companies have also come to light. The conflict between game companies and users intensified due to sudden event suspensions by game companies, failure to meet user demands, discrimination against domestic and overseas users, and so on (Chosun Biz, 2022). Users actively expressed their dissatisfaction through rating protests, truck protests, and group refund lawsuits, and stock prices of some game companies have plummeted by them. As a result, game companies have realized the importance of customer management and thus made changes such as establishing CEO-led task forces and holding regular user meetings to provide immediate feedback and proactive announcements to consumers.

Korean game industries have also been criticized for not actively engaging in socially desirable activities. According to a survey conducted in 2019, 66.1% of Korean game users responded that the game industry should increase their contribution to the society (The Kyunghyang Shinmun, 2025). Recently, however, some game companies have begun to show proactive engagement in fulfilling their social responsibility. In 2021, as part of the efforts to regain users’ trust, game companies began engaging in various social contribution activities such as expanding donations, implementing ESG management philosophy within the games, and so on, along with customer relationship management. Some game companies have held events that link gaming and donations. For example, Nexon, one of the top three game companies in Korea, has donated funds in the name of its game users, and Smilegate conducted a donation event in which the amount donated increased according to the number of in-game items acquired by game users. That is, as in other countries and industries, the ESG trend has emerged in the Korean game industry. However, experts emphasized that while this change is desirable, game companies’ social contribution activities should not be limited to formalities or one-time events (News1, 2025). This study differs from previous studies in that it was conducted on Korean companies that still lack awareness of CSR activities, not in the United States and Europe, where CSR activities are well established.

Literature Review

The literature has provided mixed evidence on whether charitable donations have positive effects on firm’s financial performance and/or shareholder wealth. Proponents argue that charitable giving can contribute to enhance a firm’s valuation. Initial research was grounded in the neoclassical economic theory, which postulates that social performance, particularly through charitable donations, could potentially augment firm value by either increasing revenue or reducing costs (McWilliams & Siegel, 2000; Navarro, 1988). Recent studies have placed a greater emphasis on the stakeholder theory, which regards the relationship between corporations and stakeholders as crucial intangible assets (Jones, 1995). Building on the stakeholder theory, prior research has shown that corporate giving enhances the company’s reputation and image, which might lead to increased customer loyalty (Lev et al., 2010), better employee morale and productivity (Greening & Turban, 2000; Navarro, 1988), and improved relationships with stakeholders including regulators and legislators (Baron, 2001; Brown et al., 2006; Neiheisel, 1994). In addition, corporate philanthropy can provide insurance-like protections that reduce the risks of losing reputations or other critical resources (Fombrun, 2000; Godfrey, 2005; Williams & Barrett, 2000). On the other hand, opponents assert that charitable donations may have a negative association with firm value because managers can engage in charitable donations to gain private benefits at the expense of shareholders (Balotti & Hanks, 1998; Monk & Minow, 2004), or because corporate philanthropy may either signal a lack of profitable investment opportunities or cause a loss of profitable projects (Seifert et al., 2003). The former prediction is consistent with the agency perspective, which posits that corporate giving generally reflects conflicts of interest between managers and shareholders (e.g., Masulis & Reza, 2015).

Although there is no definitive conclusion on whether corporate philanthropy is financially justified, prior studies generally provide evidence on a positive relationship between corporate giving and firm value. Using charitable donations and crime data, Wokutch and Spencer (1987) show that corporate philanthropy is viewed as socially desirable and is rewarded in the marketplace. A meta-analysis by Orlitzky et al. (2003) suggests that corporate social performance has a positive association with firms’ financial performance, and that corporate philanthropy has a stronger association with financial outcomes than do other social performance measures. Lev et al. (2010) examine a similar research question by focusing on a causal relationship between charitable donations and revenue growth. They document that while charitable donations have a significant association with future revenue, revenue has an insignificant or marginally significant association with future contributions. Some studies provide evidence on a nonlinear relationship between charitable donations and firm performance. For example, Wang et al. (2008) show that an inverted U-shaped relationship between the two exists, that is, while corporate philanthropy within certain limits improves firm performance by helping the firm to secure resources, this effect reverses when corporate giving increases beyond a certain level. However, some prior studies document an insignificant relation between corporate giving and firm value. Berman et al. (1999) examine the impact of five dimensions of stakeholder relationships and find that community relations, which include corporate giving, have no significant impact on firm financial performance. Other studies analyzing seven large chemical companies and employing structural equation modeling find similar results (Griffin & Mahon, 1997; Seifert et al., 2003). Some prior studies have conducted similar analyses on Korean companies. Kim et al. (2009) find that corporate giving has a positive association with firm value, and Choi et al. (2009) and Shin et al. (2011) document that CSR activities proxied by donation expenditures have an inverted U-shaped relationship with firm value. Shin et al. (2011) further show that for chaebol firms, charitable donations have no significant association with firm value. We summarize prior empirical findings with regard to the relationship between charitable donations and firm performance or value in Table 1.

Table 1.

Summary of Prior Research on the Relationship Between Charitable Donations and Firm Performance.

Relationship	Empirical findings	Example references
Positive	Charitable contributions are significantly associated with future revenue, especially for firms that are highly sensitive to consumer perception	Lev at al. (2010)
	Prospective job applicants are more likely to pursue jobs from socially responsible firms than from firms with poor social performance reputations	Greening and Turban (2000)
	Corporate giving enhances shareholder value	Brown et al. (2006), Kim et al. (2009)
	Firms that contribute to charitable causes should see their reputations enhanced	Williams and Barrett (2000)
	Corporate philanthropy has a positive association with firms’ financial performance	Orlitzky et al. (2003)
N/A	Corporate philanthropy has no significant relationship with firm financial performance	Berman et al. (1999), Griffin and Mahon (1997), Seifert et al. (2003)

Numerous prior studies have explored the factors influencing and outcomes resulting from corporate philanthropy in the context of Korean companies. Kim et al. (2019) utilized a sample of public and private Korean firms and found that public firms contributed more to charitable causes than private firms, and business group-affiliated firms made larger charitable contributions compared to unaffiliated firms. Song et al. (2020) reported results indicating that labor unions encourage corporate philanthropic behavior as a means to enhance their bargaining power. Regarding the value implications of charitable donations in Korea. Mukasa et al. (2015) presented evidence that a higher level of charitable contributions is associated with improved corporate reputation as measured by shareholder return. Park et al. (2016) empirically demonstrated a positive relationship between charitable donations and customer loyalty, providing more direct evidence in support of the stakeholder theory. Hong (2019) has documented that while there is a positive association between charitable donations and firm value on average, the association becomes negative for group-affiliated companies, suggesting that there could be substantial cross-sectional variation in the impact of charitable contributions on firm value. More recently, Chun and Song (2021) discovered a positive relationship between corporate giving and the implied cost of equity capital, interpreting this as consistent with the agency perspective. To summarize, prior studies investigating a Korean setting have provided mixed empirical evidence concerning the relationship between charitable donations and firm value or performance.

Hypothesis Development

Game companies in Korea have been criticized for their failure to fulfill their social responsibilities. It is argued that despite earning substantial profits from consumers, game companies have not provided sufficient support for socially desirable activities such as treating game addiction. Moreover, the game industry has been notorious for poor working conditions characterized by frequent overtime and intense workload, as well as sales-oriented policies that do not prioritize interests and satisfaction of game users. Although game companies have increased their social contributions in recent years, aligning with the global trend emphasizing the importance of CSR and ESG, there are still negative perceptions of these companies.

However, it is possible that such criticisms are based more on subjective perceptions than objective data. Notably, companies that have general public as their primary customers are known to engage in more in social contribution activities since the image and reputation of the company have a significant impact on profitability and firm value. In this regard, Lev et al. (2010) show that charitable donations have a positive relationship with future revenue, and such relationships are particularly significant in companies and industries where consumer perception is more important. Therefore, maintaining public relations is crucial for game companies, as the satisfaction of game users is directly linked to the image and thus profits of the game company.

As a matter of fact, many Korean game companies have engaged in various social contribution activities since the early 2000s. They donate cash or other valuables to non-profit organizations, run various public interest campaigns, and link games with public service or donations. Neowiz and NHN each established a social contribution team as an official internal organization in 2003 and 2004, and the three major game companies in Korea, so-called “3N” (i.e., Nexon, Netmarble, and NCsoft), established their own social contribution foundations in 2018 to 2019. While it is true that Korean game companies have induced excessive expenditure by introducing probability-based items and sometimes neglected feedbacks from game users, it should not overshadow their positive social contribution activities.

Nevertheless, it has been noted that companies belonging to the game industry are less active in their charitable donations compared to other industries. In a press release from 2017, the largest shareholders of major Korean game companies were criticized for their passive approach toward charitable donation activities despite collecting huge amounts of cash dividends over the years. Furthermore, in 2021, the Korea Game Industry Association issued a statement stating that game companies’ charitable donation activities were significantly below the expected level, given the size of the industry.

Based on this discussion, whether Korean game companies engage in fewer social contribution activities, specifically charitable donations, than companies in other industries is an empirical question. Hence, we state our first hypotheses as follows:

Hypothesis 1: Korean game companies engage in lower levels of charitable donations than other companies.

One of the main reasons why companies engage in charitable donations is to enhance their corporate reputation, strengthen relationships with stakeholders such as consumers and regulators (Baron, 2001; Brown et al., 2006; Lev et al., 2010; Neiheisel, 1994), and as a result, increase firm value. Building on prior studies that generally show a positive relationship between a company’s charitable donations and firm performance, it is possible to predict that the donation activities of game companies also contribute to enhancing firm value (Orlitzky et al., 2003; Wang et al., 2008; Wokutch & Spencer, 1987). According to a survey conducted by global consulting firm Accenture, 66% of respondents agreed (39%) or strongly agreed (27%) that they are more likely to play a game if the company that made the game makes efforts for social responsibility, such as participating in sustainable environmental protection efforts or protection activities for the underprivileged (Accenture, 2023). This indicates a growing interest in the social responsibility of game companies and, at the same time, suggests that their social contributions may expand revenue generation opportunities.

However, on the other hand, it is also possible that charitable donations of game companies may not contribute to higher valuation. Some game industry officials have pointed out that most of the social contribution activities of game companies are limited to one-time donations and events, and that they are only practicing ESG management in areas unrelated to issues caused by excessive spending on probability items or environmental impact of power consumption and resulting carbon emissions (Korea Creative Content Agency, 2021). For example, if a game company donates 100 million won to an environmental protection organization while its data center emits more carbon due to inefficient power consumption, it is difficult to perceive it as a sincere fulfillment of social responsibility. Therefore, some argue that game companies should first focus on improving the working environment of their internal employees and listening to the voices of game users as part of their social responsibility, rather than engaging in superficial activities such as donating or volunteering in areas unrelated to games (Korea Creative Content Agency, 2021).

The perception of corporate social contribution activities is known to be affected by situational factors, such as the relevance of philanthropic activities to a company’s business and marketing (Shim & Yang, 2016). In this regard, Yoon et al. (2006) show that the public is more likely to suspect the company’s motivation for its CSR activities if the company has a bad reputation. The experimental results by Shim and Yang (2016) also suggest that consumers tend to perceive a company’s social contributions as hypocritical and insincere when the company has bad reputation or is currently experiencing a crisis. Furthermore, this perception of hypocrisy was found to have an impact on consumers’ overall attitudes toward the company. Building on these findings, we can predict that Korean game companies’ charitable donations may not necessarily improve the corporate image and reputation as intended.

Put together, it is difficult to predict in advance the impact of game companies’ charitable giving on firm value. Therefore, we state our second hypothesis in a null form as follows:

Hypothesis 2: The level of charitable donations by game companies has no association with firm value.

Research Methodology

Sample Selection

We collect a sample of companies listed on the Korean Composite Stock Price Index (KOSPI) market during 2011 to 2019 that meets the following requirements: (1) Companies that close their accounts at the end of December, (2) Companies in the non-financial industries, and (3) Companies that provide financial statement data from both TS2000 and DataGuide. TS2000 is a solution that makes it easy to extract corporate information provided by the Korea Listed Companies Association. DataGuide is an investment analysis system of FnGuide that provides financial statements of Korean listed companies. As discussed earlier, although COVID-19 had a significant impact on the performance of gaming companies, we exclude the COVID-19 period from the sample in this study. This exclusion is due to the concern that macroeconomic effects, such as those caused by COVID-19, could obscure the relationship between charitable donations and firm value in our research model. Therefore, this study focuses on capturing the average effect of gaming companies’ charitable activities on firm value. To prevent the outlier effect, we winsorized all continuous variables at 1% and 99%. Through this process, we obtained 10,696 observations for the empirical analysis in this study. Table 2 shows the sample distribution by fiscal year. Note that the number of samples per year ranges from about 1,000 to 1,400.

Table 2.

Sample Distribution by Fiscal Year.

Year	Frequency	Cumulative frequency	Percentage (%)	Cumulative percentage (%)
2011	1,025	1,025	9.58	9.58
2012	1,037	2,062	9.70	19.28
2013	1,089	3,151	10.18	29.46
2014	1,101	4,252	10.29	39.75
2015	1,168	5,420	10.92	50.67
2016	1,214	6,634	11.35	62.02
2017	1,276	7,910	11.93	73.95
2018	1,357	9,267	12.69	86.64
2019	1,429	10,696	13.36	100.00

Note. This table presents the sample distribution by year, documenting the number of firm-year observations by year and its percentage.

Regression Model

We set up two regression models to empirically examine our hypotheses. Model 1 is the regression model used to verify whether game companies have relatively fewer donation activities than other industries. Model 2 is the regression model used to examine the effect of charitable donations on firm value for game and other industries, respectively.

[Model 1]

\begin{matrix} CD = β_{0} + β_{1} Game + β_{2} SIZE + β_{3} RND + β_{4} LEV \\ + β_{5} OI + β_{6} LAR + β_{7} GRW + β_{6} CR + β_{7} FOR \\ + β_{8} BIG + β_{9} LOSS + ID + YD + ε \end{matrix}

[Model 2]

\begin{matrix} TQ = β_{0} + β_{1} Game + β_{2} CD + β_{3} GAME \times CD \\ + β_{4} SIZE + β_{5} RND + β_{6} LEV + β_{7} OI + β_{8} LAR \\ + β_{9} GRW + β_{10} CR + β_{11} FOR + β_{12} BIG \\ + β_{13} LOSS + ID + YD + ε \end{matrix}

Measures of Charitable Donations and Firm Value

In recent studies on charitable donations, the level of charitable donations has been measured using charitable donation expenses (H. Chun et al., 2019; Hong, 2019). In order to mitigate the effect of firm size, we calculate variable CD as follows by dividing the charitable donation expenses by the total assets. Due to the nature of the gaming industry, the annual revenues of gaming companies are relatively more volatile compared to the manufacturing industry. We determined that using total assets, which have less volatility than total revenues, would be a more appropriate way to measure the CD variable in order to examine the impact of charitable donations on firm value.

Charitable Donations ratio (CD) = \frac{Charitable Donation Expenses}{Total Assets}

Numerous prior studies related to firm value have utilized Tobin’s q to measure firm value (Coles et al., 2008; K. H. Chung & Pruitt, 1994; Demsetz & Villalonga, 2001; Ferris et al., 2003; Wernerfelt & Montgomery, 1998). In this study, we calculated TQ using the following formula.

Tobin ’ s q (TQ) = \frac{Market Value of Equity + Total Liability}{Total Assets}

Variables Definition

Table 3 provides definitions of the variables used in the empirical analyses. The key variables are TQ (firm value measured by Tobin’s q), CD (level of charitable donations), and GAME (a dummy variable used to distinguish whether a company belongs to the game industry). We also include control variables (SIZE, RND, LEV, OI, LAR, GRW, CR, FOR, BIG, and LOSS) that are known to affect firm value. We first control for firm size (SIZE) because prior studies show that firm size is a key determinant of firm value (Fama & French, 1993). We include R&D intensity (RND) as prior research has generally documented a positive correlation between R&D investment and firm value (Johnson & Pazderka, 1993). Following Hong (2019), we include leverage (LEV), an indicator for losses (LOSS), and growth rate (GRW) that are potentially associated with firm value. In line with Fatma and Chouaibi’s (2023) findings that corporate governance significantly impacts firm value, we include the largest shareholder ownership (LAR) and foreign ownership (FOR) as additional control variables ( Fatma & Chouaibi, 2023). Since prior studies provide evidence that Big 4 auditors tend to provide high-quality audit, we included an indicator for BIG 4 auditors (BIG) that could contribute to higher accounting quality and thus higher firm value (Francis & Yu, 2009). Moreover, considering that the stock market takes into account operating profit and liquidity of firms, we include OI and CR to control for the effects of these on firm value.

Table 3.

Variable Definitions.

Variables	Definition
TQ	Tobin’s q (Q ratio), (market value of equity + total liabilities) / total assets
CD	Charitable donations ratio, measured as charitable donations divided by total assets × 100
GAME	Dummy variable that is 1 if classified as a game-related company (KSIC-10 standards: 5821), otherwise 0
SIZE	Natural log of total assets
RND	R&D ratio, measured as R&D expenses divided by sales
LEV	Leverage ratio, measured as total liabilities divided by total assets
OI	Operating income ratio, measured as operating income divided by sales
LAR	Large shareholder ownership
GRW	Growth, sales in year t / sales in year t−1
CR	Current ratio, measured as current assets divided by current liabilities
FOR	Foreign ownership
BIG	A dummy variable that equals 1 if the firm employs a Big 4 audit firm, and 0 otherwise
LOSS	A dummy variable equal to 1 if the firm reported net losses in the past two years, and 0 otherwise
YD	Fiscal year dummy variables
ID	Industry dummy variables

Empirical Results

Descriptive Statistics

Table 4 presents descriptive statistics for the variables used in this study. The mean (median) value of TQ is 1.667 (1.178). The mean of CD is .051, indicating that on average, sample companies donate .051% of their assets. The mean (median) value of GAME is .010, which means that 1.0% of the total sample companies belong to the game industry. The mean values for SIZE, LEV, OI, and CR are 18.915, .412, .029, and 2.867, respectively. In addition, the average value of RND is .047, indicating that the sample company uses 4.7% of its sales for R&D activities on average. The average values of LAR and FOR are .388 and .067, respectively, with sample companies reporting an average large shareholder ownership of 38.8% and an average foreign shareholder ownership of 6.7%. The mean value of GRW is 1.063, indicating that, on average, the sample companies have grown 6.3% compared to the previous year. The mean value of BIG is .490, indicating that 49% of the sample companies employed Big4 audit firms. The mean value of LOSS is .217, meaning that 21.7% of the sample companies have experienced a net loss in the past 2 years.

Table 4.

Descriptive Statistics.

Variables	Mean	Std.	Min.	25th	Median	75th	Max.
TQ	1.667	1.544	.462	.881	1.178	1.800	1.610
CD	.051	.117	.000	.000	.009	.046	.773
GAME	.010	.100	.000	.000	.000	.000	1.000
SIZE	18.915	1.389	16.514	17.985	18.644	19.525	23.873
RND	.047	.091	.000	.006	.020	.050	.701
LEV	.412	.223	.043	.235	.403	.562	1.081
OI	.029	.206	−1.267	.005	.043	.101	.492
LAR	.388	.161	.076	.264	.381	.502	.771
GRW	1.063	.302	.406	.919	1.029	1.145	2.555
CR	2.867	3.445	.320	1.058	1.665	3.102	22.049
FOR	.067	.104	.000	.007	.022	.075	.528
BIG	.490	.500	.000	.000	.000	1.000	1.000
LOSS	.217	.412	.000	.000	.000	.000	1.000

Notes. This table presents the descriptive statistics for the variables used in the analyses. Refer to Table 3 for variable definitions. The Charitable Donations (CD) ratio is calculated as the amount of charitable contributions divided by total assets. When total assets are very large relative to charitable contributions, the CD value may fall below four decimal places. Therefore, even if the CD value appears as .000, this does not necessarily mean that no charitable contributions were made.

Univariate Analysis

Table 5 presents the Pearson correlation and Spearman correlation results, showing the relationships between the variables used in this study. The significant negative association between GAME and CD suggests that companies in the gaming industry make relatively fewer charitable donations compared to companies in other industries. However, the significant positive association between GAME and TQ indicates that game companies are evaluated more favorably in terms of firm value than those in other industries. Additionally, the positive association between CD and TQ implies that charitable giving activities can help improve firm value. Based on the results of the univariate analysis, it can be inferred that game companies engage in fewer donation activities than companies in other industries yet have relatively higher firm value. Moreover, donating can help improve the firm value of game companies. However, the univariate analysis has limitations since it does not consider the effects of control variables. Therefore, multivariate analysis is necessary to examine the overall relationship between game companies, charitable donations, and firm value.

Table 5.

Correlation Matrix.

Var.	TQ	CD	GAME	SIZE	RND	LEV	OI	LAR	GRW	CR	FOR	BIG
CD	.080***		−.005	.234***	−.028***	−.034***	.187***	.072***	.030***	.017*	.223***	.096***
GAME	.075***	−.003		.011	.097***	−.087***	.064***	−.022**	−.009	.067***	.038***	.051***
SIZE	−.242***	.128***	.006		−.347***	.162***	.103***	.197***	−.035***	−.285***	.520***	.353***
RND	.421***	−.018*	.105***	−.216***		−.194***	.076***	−.267***	.134***	.278***	−.030***	−.075***
LEV	.053***	−.038***	−.083***	.135***	−.105***		−.179***	−.076***	.126***	−.739***	−.122***	.044***
OI	−.126***	.111***	.044***	.170***	−.480***	−.091***		.141***	.420***	.234***	.202***	.081***
LAR	−.178***	.029***	−.024**	.149***	−.182***	−.070***	.177***		.011	.037***	−.059***	.160***
GRW	.255***	.029***	.008	−.067***	.197***	.161***	.156***	−.028***		.026***	.024**	.017*
CR	.260***	−.021**	.079***	−.234***	.293***	−.539***	−.041***	.012	−.001		.075***	−.050***
FOR	.025***	.152***	.041***	.502***	−.035***	−.101***	.155***	−.027***	.006	.020**		.190***
BIG	−.050***	.078***	.051***	.376***	−.024**	.036***	.087***	.162***	−.013	−.067***	.237***
LOSS	−.065***	−.016*	−.006	.001	.037***	−.036***	−.205***	−.016*	−.168***	.028***	−.025**	−.005

Notes. This table presents Pearson (left-bottom) and Spearman (right-up) correlation coefficients among the variables used in the analyses. Refer to Table 3 for variable definitions. ***, **, and * indicate statistical significance at the 1%, 5%, and 10% levels, respectively, in two-tailed tests.

Multivariate Analyses

Table 6 presents the results of the association between game companies and charitable donations. The coefficient on GAME is −.0250 (t-value = −2.12), which is significant at the 5% level with CD. This indicates that companies in the game industry have relatively fewer charitable donation activities compared to companies in other industries. The coefficients of SIZE, RND, OI, and FOR are significantly positive, while the coefficients of LEV and CR are significantly negative. This result indicates that, in detail, companies with larger size (SIZE), higher R&D investment (RND), higher operating income (OI), and a higher percentage of foreign ownership (FO) tend to have higher levels of charitable donations. On the other hand, companies with higher leverage (LEV) and higher liquidity ratios (CR) tend to have lower charitable donations relative to their total assets. The adjusted R-square from this model is 12.42%. In this study, we measure the Variance Inflation Factor (VIF) to address potential multicollinearity issues. Generally, a VIF value greater than 10 indicates a severe multicollinearity problem, and a value greater than five suggests the potential for multicollinearity. Since the highest VIF value in Table 6 is 2.027, it is unlikely that multicollinearity will be a problem in this study. This multivariate result supports our hypothesis 1, which states that Korean game companies will engage in lower levels of charitable donations than other companies. This finding is consistent with the criticism that Korean game companies’ charity donation activities are insufficient compared to companies in other industries with the similar size.

Table 6.

Regression Results for Hypothesis 1.

Variables	Dependent variable: CD
Variables	Coefficient	t-Value	VIF
GAME	−.025**	−2.12	1.245
SIZE	.003***	3.11	2.015
RND	.047***	2.83	2.027
LEV	−.012**	−2.01	1.639
OI	.057***	8.42	1.757
LAR	.008	1.11	1.235
GRW	.005	1.36	1.263
CR	−.002***	−4.01	1.615
FOR	.114***	9.07	1.535
BIG	.003	1.09	1.289
LOSS	.002	.60	1.085
Constant	.530***	13.27	.000
Industry dummies (ID)	Included
Year dummies (YD)	Included
Adjusted R-squared	12.42%
No. of observations	10,696
Max VIF	2.027

Note. This table presents the results of estimating Model 1. *** and ** indicate statistical significance at the 1% and 5% levels respectively, in two-tailed tests. Detailed definitions of the variables are provided in Table 3.

Table 7 presents the regression results for hypothesis 2, which states that the level of charitable donations by game companies will have no association with firm value. The coefficient of GAME is .532 (t-value = 3.77), which is significant at the 1% level with TQ. This suggests that the value of companies in the game industry is higher than that of companies in other industries. The coefficient of CD is .768 (t-value = 7.15), which is also significant at the 1% level with TQ, suggesting that charitable donation activities have a positive impact on increasing firm value. The significant positive correlation between CD and TQ identified in this study strengthens the argument long emphasized by both academics and practitioners that corporate social responsibility activities can enhance stakeholder value (Chung et al, 2018). The mechanism behind this relationship can be explained based on previous studies. By engaging in charitable donations, firms can foster positive relationships with their communities, thereby enhancing their reputation and reducing transaction costs, which in turn provide a competitive advantage (Freeman, 2010; Janney & Gove, 2011; Turban & Greening, 1997). As a result, companies may benefit from a lower cost of capital, which ultimately contributes to an increase in firm value (Chung et al., 2018; El Ghoul et al., 2011). This result is consistent with Hong (2019), which demonstrate that corporate philanthropic activities by Korean companies can contribute to enhancing firm value (Hong, 2019). The coefficient of the variable of our interest, GAME × CD, is 2.775 (t-value = 2.47)and significant at the 5% level with TQ. This indicates that the charitable donation activities of Korean game companies can have stronger effects on increasing firm value than in other industries. This result contrasts to Yoon et al. (2006) and Shim and Yang (2016), which propose that social contributions from companies with bad reputation might be perceived as insincere, potentially leading to negligible effects on enhanced valuations. Overall, the results of Table 7 suggest that charitable donations could serve as a means for Korean game companies to improve their firm value, particularly for game industries for which the reputation and image of the company have direct impacts on its profitability.

Table 7.

Regression Results for Hypothesis 2.

Variables	Dependent variable: TQ
Variables	Coefficient	t-Value	VIF
GAME	.532***	3.77	1.456
CD	.768***	7.15	1.157
GAME × CD	2.775**	2.47	1.227
SIZE	−.260***	−21.75	2.017
RND	1.910***	28.43	1.640
LEV	4.217***	23.04	2.030
OI	.597***	7.92	1.770
LAR	−.534***	−6.61	1.236
GRW	.537***	12.34	1.263
CR	.104***	24.07	1.618
FOR	2.076***	14.88	1.548
BIG	.041	1.56	1.289
LOSS	−.124***	−4.21	1.085
Constant	5.962***	13.41	.000
Industry dummies (ID)	Included
Year dummies (YD)	Included
Adjusted R-squared	38.65%
No. of observations	10,696
Max VIF	2.030

Notes. This table presents the results of estimating Model 2. *** and ** indicate statistical significance at the 1% and 5% levels respectively, in two-tailed tests. Detailed definitions of the variables are provided in Table 3.

Most control variables are significantly related to TQ, except BIG. The coefficients for RND, LEV, OI, GRW, CR, and FOR are significantly positive, while the coefficients for SIZE, LAR, and LOSS are significantly negative. This suggests that companies with higher R&D investment (RND), leverage ratio (LEV), operating income (OI), sales growth (GRW), current ratio (CR), and foreign ownership (FOR) tend to have higher firm valuations. On the other hand, companies with larger size (SIZE), higher large shareholder ownership (LAR), or those that have experienced net losses in the past 2 years (LOSS) tend to have lower firm valuations. The adjusted R-square from this model is 38.65%. The maximum VIF value in Table 7 is 2.030, which is less than 5, indicating that there is unlikely to be a multicollinearity problem between the independent variables.

The Propensity Score Matching Analysis

Our results for H2 could be driven by systematic differences in covariates between game companies and other companies. For instance, if the game industry comprises relatively larger and more profitable companies compared to other industries, these economic fundamentals, rather than whether and how much charitable donations are made, might result in higher valuations. To address this concern, we additionally conduct a propensity score matching (hereafter “PSM”) analysis. Akdogan (2020), Farah et al. (2021), Li et al. (2022), and Agoraki et al. (2023) report that Propensity Score Matching (PSM) analysis can be used to address endogeneity issues. We conduct a PSM analysis to mitigate these concerns. We begin by estimating a propensity of firm-years to make a large amount of charitable donations, conditional on all covariates included in Model 2. Specifically, we run a logit regression using the following first-stage model:

[Model 3]

\begin{matrix} CD_DUMMY = β_{0} + β_{1} SIZE + β_{2} RND + β_{3} LEV + β_{4} OI + β_{5} LAR \\ + β_{6} GRW + β_{7} CR + β_{8} FOR + β_{9} BIG + β_{10} LOSS \\ + ID + YD + ε \end{matrix}

where CD_DUMMY is an indicator variable that equals one if the firm has made a large amount of charitable donations in year t, and zero otherwise. Firm-years are categorized as making a large (small) amount of donations if CD is above (below) the median among all firm-year observations. Other variables are as defined before. Following prior research, we control for all covariates included in Model 2 in the first-stage model (Shipman et al, 2017).

We then match each firm-year in the game industry to the firm-year in other industries with the closest propensity to make a large amount of donations using a caliper width equal to .05 of the standard deviation of the logit propensity score. This process yields a total of 216 firm-year observations, including 108 firm-years in the game industry and 108 in other industries. Using this matched sample, we run Model 2 to verify the robustness of our findings. In Table 8, we present both the first-stage and the second-stage model results. The results of the second-stage model show that the coefficient on GAME × CD, our variable of interest, is positive and statistically significant at the 5% level (2.326 with t-value = 2.20). This suggests that our results for H2 are unlikely to be driven by differences in firm fundamentals between game companies and others.

Table 8.

Results for the PSM Procedure.

Dependent variable: variables	1st-stage		2nd-stage
	CD_DUMMY		TQ
	Coefficient	t-Value	Coefficient	t-Value
GAME			1.167	1.36
CD			−1.295	−1.37
GAME × CD			2.326**	2.20
SIZE	.248***	11.28	−.288*	−1.70
RND	2.402***	6.89	.896	.58
LEV	−.779***	−6.36	2.696***	3.45
OI	1.509***	10.24	1.071	.95
LAR	.018	.12	−2.386**	−2.20
GRW	.319***	4.04	2.058***	2.99
CR	−.020***	−2.59	.095**	2.55
FOR	.800***	3.15	1.746	1.39
BIG	−.088*	−1.85	−.066	−.20
LOSS	.157***	2.98	−.016	−.06
Constant	−5.881***	−12.70	4.770	1.34
Industry dummies (ID)	Included		Included
Year dummies (YD)	Included		Included
Pseudo (adjusted) R²	.122		.373
No. of observations	10,670		216

Notes. This table presents the results of estimating Model 2 using a propensity score-matched sample. ***, **, and * indicate statistical significance at the 1%, 5%, and 10% levels, respectively, in two-tailed tests. Detailed definitions of the variables are provided in Table 3.

Robustness Analysis

We address two main issues to ensure the robustness of our main results. First, we evaluate whether charitable donations specifically affects firm value, focusing only on companies that have made charitable donations. Second, we examine causality by testing whether firm value influences the level of charitable donations rather than vice versa. To enhance robustness, we use the natural logarithm of charitable donations (LNCD) to control for the scale of charitable donations and exclude companies with zero donations. Additionally, to address causality concerns, we included 2020 data to obtain the t + 1 value of the dependent variable, TQ, in the robustness analysis sample. This adjustment brings the total sample size to 8,505, and the results of the robustness analysis are presented in Tables 9 and 10 below.

Table 9.

Robustness Analysis Results for Hypothesis 1.

Variables	Dependent variable: LNCD
Variables	Coefficient	t-Value	VIF
GAME	−.616***	−2.81	1.250
SIZE	1.058***	55.04	2.073
RND	1.527***	4.75	1.782
LEV	−.243*	−2.18	1.697
OI	1.187***	8.45	1.635
LAR	−.026	−.19	1.262
GRW	.129*	1.73	1.330
CR	−.029***	−3.86	1.648
FOR	1.983***	9.04	1.621
BIG	.110**	2.55	1.338
LOSS	.023	.50	1.094
Constant	−7.020***	−11.03	.000
Industry dummies (ID)	Included
Year dummies (YD)	Included
Adjusted R-squared	50.53%
No. of observations	8,505
Max VIF	2.073

Notes. This table presents the results of estimating Model 1. ***, **, and * indicate statistical significance at the 1%, 5%, and 10% levels, respectively, in two-tailed tests. Detailed definitions of the variables are provided in Table 3.

Table 10.

Robustness Analysis Results for Hypothesis 2.

Variables	Dependent variable: TQ_t		Dependent variable: TQ_t + 1
Variables	Coefficient	t-Value	Coefficient	t-Value
GAME_t	−1.129*	−1.87	−1.272*	−1.73
LNCD_t	.041***	5.36	.011	1.29
GAME_t × LNCD_t	.150***	2.83	.142**	2.22
SIZE_t	−.290***	−18.53	−.180***	−10.40
RND_t	5.460***	24.28	4.861***	18.02
LEV_t	1.938***	24.95	.446***	5.05
OI_t	1.112***	11.29	1.035***	8.50
LAR_t	−.385***	−4.17	−.622***	−5.95
GRW_t	.506***	9.72	.092	1.49
CR_t	.100***	19.25	.031***	5.20
FOR_t	2.243***	14.56	1.354***	7.98
BIG_t	.008	.28	−.060*	−1.82
LOSS_t	−.087***	−2.70	−.091**	−2.52
Constant	6.589***	14.72	5.574***	11.50
ID and YD	Included

Notes. This table presents the results of estimating Model 2. ***, **, and * indicate statistical significance at the 1%, 5%, and 10% levels, respectively, in two-tailed tests. Detailed definitions of the variables are provided in Table 3.

Tables 9 presents the robustness analysis for Hypothesis 1. There is a significant positive association between GAME and LNCD at the 1% level, indicating that the results continue to support Hypothesis 1 even after firms that did not engage in charitable donations are excluded. This finding is consistent with the results presented in Table 6. Table 10 presents the robustness analysis results for Hypothesis 2. In the first column, the interaction term GAME × LNCD shows a significant positive correlation with TQ at the 1% level, suggesting that firm value may increase with higher levels of charitable donations by game companies. However, this positive correlation could also imply that firms with higher value are more likely to make larger charitable donations. To address this causality issue, we adjusted the research model by setting the independent variable at time t and the dependent variable at time t + 1. The results of this analysis, shown in the second column of Table 10, indicate that the interaction term GAME × LNCD at time t remains significantly correlated with TQ at time t + 1, suggesting that current charitable donations by game companies positively influence firm value in the following year. In other words, the results in the second column help address the causality issue, confirming that firm value does not drive the level of charitable giving; rather, the donation activities of game companies can enhance future firm value. In summary, the robustness analysis results are consistent with the main findings for Hypotheses 1 and 2, even when considering only companies that made charitable donations, and the results suggest that causality is not an issue for Hypothesis 2.

Conclusions and Discussions

This study investigates whether Korean game companies are indeed less engaged in charitable donation activities compared to companies in other industries using a dataset of listed companies in Korea from 2011 to 2019. Next, we examine whether the level of charitable donations is associated with firm value of game companies and others. We find that the donation expenditures of Korean game companies are lower compared to companies in other industries. This finding supports the argument that Korean game companies have not sufficiently engaged in CSR activities through charitable donations. We also find that there is a positive correlation between the level of charitable donations and firm value among Korean game companies. Notably, this positive correlation is found to be stronger within the game industry compared to other industries. Taken together, our results suggest that charitable donation activities have a significant impact on firm value, and that game companies can improve corporate sustainability through charitable donation activities.

This study provides the following theoretical contributions. To the best of our knowledge, it is the first empirical study to investigate the impact of game companies’ charitable donation activities on firm value for Korean listed companies. Our findings reveal that game companies make less charitable donations than companies in other industries, consistent with the perception that these companies do not actively engage in socially responsible activities. However, we also find that despite lower levels of donations, more corporate giving contributes to higher firm value, presumably by enhancing firm reputation. These findings corroborate and expand prior studies providing evidence on positive valuation implications of corporate philanthropy (e.g., Brown et al., 2006; Lev et al., 2010).

Our findings also have practical implications. The evidence that Korean game companies make fewer donations but that their donations contribute to improving firm value provides valuable insights for practitioners, policymakers, and investors. Policymakers may encourage game companies to engage more in socially desirable activities including donations, while practitioners can take the benefits of increasing corporate giving into account when making resource allocation decisions. Investors of game companies may also consider the magnitude and persistence of firms’ charitable donations when assessing their value.

We acknowledge that this study may have the following limitations. Firstly, endogeneity issues such as correlated omitted variable problems or reverse causality may bias our empirical results. Also, the findings can be dependent on measurement criteria or the period investigated. Secondly, as our research focuses exclusively on the listed companies in Korea, generalizing our results to countries with substantial social, cultural, and legal differences need caution. Particularly, considering that the Korean game industry is mainly driven by online games, the results of this study may not apply to countries where the game industry is driven by other types of games than online games. Lastly, our findings do not speak to the mechanism by which corporate contributions enhance firm value. Due to data constraints, a direct assessment of changes in the firm’s reputation was infeasible.

In this study, we analyze the impact of charitable donations by gaming companies on firm value within the Korean market. For future research, we propose expanding the analysis by categorizing the sample companies into subgroups based on key criteria such as company size (large vs. small companies), market orientation (domestic vs. international markets), and profitability (high-profit vs. low-profit companies). This approach would allow for a more detailed examination of how charitable donations influence firm value across different types of companies, offering deeper insights into the role of corporate philanthropy in diverse business contexts.

Footnotes

ORCID iD

Chang Seop Rhee

Funding

The author(s) disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: This work was supported by Yonsei Business Research Institute.

Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

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