Social comparison, shared legitimacy, and corporate philanthropy: the case of Korean business groups

Firms that are affiliated with business groups (group firms) intrinsically have strategic advantages, including internal capital markets and shared group legitimacy. Group firms take advantage of shared group legitimacy, and some of them may take more responsibility for improving group legitimacy as a whole. By integrating social comparison theory and the behavioral theory of the firm, we investigate why and how group firms' performance feedback from internal and external aspiration levels is involved in corporate philanthropy. Using a longitudinal dataset of Korean business groups and their group firms from 2010 to 2018, we find that group firms that outperform, relative to their internal aspiration level, are more likely to pursue philanthropy, whereas group firms that underperform relative to their external aspiration level are less likely to be involved in philanthropy. Industry competition weakens the relationship between firms' performance below-external-aspiration level and philanthropy. This study sheds new light on the behavioral theory of the firm by investigating the cognitive and behavioral coordination of group firms.