Corporate donations and shareholder value

Hao Liang, Luc Renneboog

Research output: Contribution to journalArticleScientificpeer-review

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
Pages (from-to)278-316
JournalOxford Review of Economic Policy
Volume33
Issue number2
DOIs
Publication statusPublished - 25 Aug 2017

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election
Donation
Shareholder value
firm
Agency problems
Cash
Firm value
effect
analysis
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

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Corporate donations and shareholder value. / Liang, Hao; Renneboog, Luc.

In: Oxford Review of Economic Policy, Vol. 33, No. 2, 25.08.2017, p. 278-316.

Research output: Contribution to journalArticleScientificpeer-review

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