Too Little or Too Much? Reexamining the Relationship between Corporate Giving and Corporate Financial Performance

Hong Kong University of Science & Technology Business School Research Paper

Academy of Management Best Conference Paper SIM: G1, 2005

7 Pages Posted: 15 Aug 2007

See all articles by Heli C. Wang

Heli C. Wang

Hong Kong University of Science & Technology (HKUST) - Department of Management & Organization

Jaepil Choi

Hong Kong University of Science & Technology

Jiatao Li

Hong Kong University of Science & Technology (HKUST) - Department of Management & Organization

Abstract

How do corporate charitable contributions affect corporate financial performance? Instrumental stakeholder theory posits that corporate giving can lead to high levels of corporate financial performance through improved stakeholder relations. In contrast, agency theory suggests that corporate giving diverts valuable corporate resources and inhibits corporate financial performance. Extant empirical studies that have examined the relationship found inconclusive results. We depart from and extend the existing literature in two main aspects. First, building upon the instrumental stakeholder argument and agency perspective, we develop the argument that there is an inverse U-shaped relationship between corporate charitable giving and corporate financial performance. Second, we predict that the inverse U-shaped relationship changes over time: firms that engage in moderate amounts of giving in a later period would have a higher level of financial performance than those in an earlier period. The hypotheses are tested with a longitudinal data set of corporate giving from 1984 to 1999, providing strong support for our predictions.

Suggested Citation

Wang, Heli and Choi, Jaepil and Li, Jiatao, Too Little or Too Much? Reexamining the Relationship between Corporate Giving and Corporate Financial Performance. Hong Kong University of Science & Technology Business School Research Paper; Academy of Management Best Conference Paper SIM: G1, 2005 . Available at SSRN: https://ssrn.com/abstract=1007176

Heli Wang (Contact Author)

Hong Kong University of Science & Technology (HKUST) - Department of Management & Organization ( email )

Clear Water Bay, Kowloon
Hong Kong

Jaepil Choi

Hong Kong University of Science & Technology ( email )

Organizational Behavior
Clear Water Bay, Kowloon
Hong Kong

Jiatao Li

Hong Kong University of Science & Technology (HKUST) - Department of Management & Organization ( email )

5473
Clear Water Bay, Kowloon
Hong Kong, PRC
852-2358 7757 (Phone)

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