The Comparative Value Relevance of Donation and Advertising Expenditure Before and After the Global Financial Crisis in Korea

This paper investigates the comparative value relevance of donation and advertising expenditures before and after the 2007 global financial crisis in listed Korean stock markets over the period of 2004-2011. For the purpose of testing whether value relevance of donation and advertising expenditure is associated with global financial crisis of 2008, this paper divides total samples into pre-and post December 31, 2007. Moreover, this paper divides total samples into several subgroups to observe value relevance changes according to the various characteristics and conditions of listed firms in Korean stock markets. Empirical results of this paper present important evidences about the comparative value relevance changes of advertising and donation expenditures. First, advertising and donation expenditures have positive value relevance before and after global economic crisis. Moreover, they also show positive association with firm value in every subsample groups divided by firms’ characteristics. Second, the results find significant time-period differences in value relevance of donation and advertising expenditure before and after global financial crisis. In addition, the results show the value relevance changes in accordance with circumstance and contexts of firms (such as KOSPI vs. KOSDAQ, big vs. small & medium, high technology vs. low technology).