Publication Type

Journal Article

Version

submittedVersion

Publication Date

4-2017

Abstract

Do corporate donations enhance shareholder wealth or reflect agency problems? We address this question for a global sample of firms whereby we distinguish between charitable and political donations, as well as between donations in cash and in kind. We find that charitable donations are positively related to financial performance and firm value, which is consistent with the value-enhancement hypothesis. This positive effect on firm value is stronger for cash than in-kind donations. In contrast, political donations do not appear to enhance shareholder value, but rather tend to reflect agency problems, as they are higher for firms with poor internal corporate governance and strong managerial entrenchment. We address endogeneity concerns by using peer firms’ donations as an instrument in a two-stage least squares (2SLS) setting and by conducting a difference-indifference analysis around a general election.

Keywords

Corporate social responsibility, corporate philanthropy, charitable donations, political donations, corporate foundation, corporate governance, firm value

Discipline

Finance | Finance and Financial Management

Research Areas

Finance

Publication

Oxford Review of Economic Policy

Volume

33

Issue

2

First Page

278

Last Page

316

ISSN

0266-903X

Identifier

10.1093/oxrep/grx024

Publisher

Oxford University Press (OUP): Policy E - Oxford Open Option D

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.1093/oxrep/grx024

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