Corporate Donations and Shareholder Value

H. Liang, Luc Renneboog

Research output: Working paperDiscussion paperOther research output

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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-in-difference analysis around a general election.
Original languageEnglish
Place of PublicationTilburg
PublisherCentER, Center for Economic Research
Number of pages48
Volume2017-013
Publication statusPublished - 15 Mar 2017

Publication series

NameCentER Discussion Paper
Volume2017-013

Fingerprint

Donation
Shareholder value
Agency problems
Cash
Firm value
Two-stage least squares
Financial performance
Shareholder wealth
Elections
Charitable donations
Corporate governance
Endogeneity
Managerial entrenchment
Difference-in-differences
Peers
Enhancement

Keywords

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

Cite this

Liang, H., & Renneboog, L. (2017). Corporate Donations and Shareholder Value. (CentER Discussion Paper; Vol. 2017-013). Tilburg: CentER, Center for Economic Research.
Liang, H. ; Renneboog, Luc. / Corporate Donations and Shareholder Value. Tilburg : CentER, Center for Economic Research, 2017. (CentER Discussion Paper).
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Liang, H & Renneboog, L 2017 'Corporate Donations and Shareholder Value' CentER Discussion Paper, vol. 2017-013, CentER, Center for Economic Research, Tilburg.

Corporate Donations and Shareholder Value. / Liang, H.; Renneboog, Luc.

Tilburg : CentER, Center for Economic Research, 2017. (CentER Discussion Paper; Vol. 2017-013).

Research output: Working paperDiscussion paperOther research output

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N2 - 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-in-difference analysis around a general election.

AB - 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-in-difference analysis around a general election.

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Liang H, Renneboog L. Corporate Donations and Shareholder Value. Tilburg: CentER, Center for Economic Research. 2017 Mar 15. (CentER Discussion Paper).