Strategic choices for corporate growth vary across FLC stages. CSR activities could be directed as a management strategy used by a firm to moderate the agency problem between managers and shareholders. Thus, the relationship between CSP and CFP would vary across FLC stages. Specifically, the business situation that a firm faces at each stage is as follows: firms at the introduction stage are usually small in size and do not have much financial capacity, making it difficult to differentiate products through business diversification and innovation [
30,
31]. Their financial performance also fluctuates or incurs losses, resulting in lower CFP than those at other FLC stages [
18,
32]. They cannot afford to invest in CSR activities, and their future sustainability is uncertain. Managers may engage in CSR activities to hide opportunistic behaviors, deepening the agency problem. Thus, the weights of CSP on CFP is smaller than those of other FLC stages. Firms at the growth stage may be innovators that succeeded in finding their market among the firms at the introduction stage. They increase sales and employment through product diversification and innovation [
19,
20,
32]. Thus, they still must invest in infrastructure to maintain high growth and returns [
33] and evaluate managers in the long-term perspective [
34]. They also invest heavily in CSR activities to reduce the agency problem, and CSP begins to be reflected significantly in CFP. Firms at the mature stage adopt strategies for long-term growth due to more sustainable revenue than firms at other FLC stages [
9,
16,
19]. They increase efficiency in the production process through accumulated know-how and knowledge, resulting in the highest profitability among all life cycle stages [
18,
32,
35]. Thus, they continue to invest in CSR activities to alleviate the agency problem, and the extent to which CSP affects CFP is greater. Firms at the shake-out stage do their best to find new growth opportunities, as growth rates slow down sharply [
18]. If they fail to find new growth opportunities, they experience a steep fall in the growth rate and face considerable uncertainty on whether they can continue as a going concern. Thus, they do not invest heavily in CSR activities, and CSP has less impact on CFP. Firms at the decline stage did not find any further growth opportunities in the market, resulting in a decline in their market share, worsening profitability, increased debt, and decreased liquidity [
18,
19,
32]. They focus on restructuring or merging with other firms by reducing operating costs rather than growth-oriented investment [
19,
36]. They invest very little in CSR activities, and even if they do, they use them to achieve opportunistic goals. Therefore, CSP does not lead to an increase in CFP. Miller and Friesen [
19] argue that firms tend to move in a linear progression through the five life cycle stages. Govindarajan and Shank [
35] explain the FLC using the product portfolio matrix and emphasize the importance of the management control system to carry out strategies for each life cycle. Anthony and Ramesh [
36] find that the market reaction to accounting performance is a function of the FLC stage. Koberg et al. [
33] attempt to explain why the innovativeness of a firm changes as the FLC develops. Black [
32] finds that the informativeness of earnings and cash flow measures differ across FLC stages. Dickinson [
18] argues that future profitability differs across FLC stages. Consequently, the CSP–CFP sensitivity varies depending on the effect of CSP on the agency problem for each FLC stage.
4. The CSP–CFP Sensitivity and Chaebol Firm Effects
Unlike firms in Western countries where the agency problem traditionally arises from conflicts of interest between managers and shareholders (“Agent–Principal” conflicts), the agency problem in Asian firms arises from those between controlling and minority shareholders (“Principal–Principal” conflicts) [
7,
14,
21,
23,
25]. In Korean firms, where ownership is not separated from control, the controlling shareholder can either directly act as a manager or appoint a manager whom they can control. Therefore, the controlling shareholder can exercise significant influence over corporate management. This unique feature is prominent in Korean Chaebol firms owned by families and makes it easier for owner-managers to exploit other shareholders. Chaebols indicate, in strict terms, a large business group subject to the regulations of the Korean Fair Trade Commission to prevent the concentration of economic power via pyramidal ownership structures and cross-holdings among affiliated firms. The controlling shareholders of Chaebols can exercise greater voting rights than cash flow rights and are more likely to pursue their interests by using the wedge between voting rights and cash-flow rights. However, controlling shareholders cannot overlook the importance of CSR as they have an incentive to run a firm from a long-term perspective. Therefore, CSR activities can be a safety device to alleviate the agency problem between controlling and minority shareholders.
If managers of Chaebols engage in CSR activities to achieve opportunistic goals, CSR activities only incur costs that intensify the agency problem and reduce CFP [
3,
7,
37]. On the other hand, if they use CSR activities to reduce information asymmetry in the long-term perspective, CSR activities will alleviate agency problems and increase CFP. However, the controlling shareholders of Chaebol firms have been known to create a severe agency problem by engaging in tunneling activities that benefit them at the expense of other shareholders. Bae et al. [
26] prove that the controlling shareholders of Chaebols benefit from acquisitions by tunneling activities. Baek et al. [
28] find that Chaebol firms tend to sell their securities at lower prices when the controlling shareholders in the issuing firms can gain benefits from selling securities at a discount. Bae and Jeong [
27] show that the value-relevance of earnings and book value is significantly smaller for Chaebol firms. Park [
14] reveals that managerial influence to reduce audit quality is higher among Chaebol firms. Park and Lee [
7] show that the short-term incentive for compensation that exacerbates the agency problem drives the sensitivity of CSP to CFP in Chaebol firms. Taken together, Chaebols are passive to CSR, and the cost of CSR activities do not contribute to the increase in CFP. The CSP–CFP sensitivity will be relatively lower in Chaebol firms, and this sensitivity will depend on the FLC stage.