Corporate Philanthropy, Employees and Misconduct
53 Pages Posted: 22 Dec 2013 Last revised: 24 Oct 2016
Date Written: February 23, 2016
Corporate charitable programs help attract and retain socially aware employees and directors. As these employees and directors are likely to be conscious of the social harm caused by corporate misconduct, they are less likely to tolerate wrongdoing. Consistent with this notion, we document that employees at philanthropic firms are more likely to whistle blow when they observe wrongdoing. Moreover, directors at giving firms are more likely to force out a CEO after misconduct is revealed. The higher likelihood of whistle blowing along with greater penalties upon discovery should lower the propensity to engage in misconduct. In line with this, we find that corporate philanthropy is associated with less misconduct. To address the endogeneity of corporate giving, we instrument it by peer giving, with qualitatively similar results. The results are robust to differing approaches for defining misconduct and employer attractiveness, and also in different subsamples of the data. Our findings highlight the role of non-financial imperatives of employees and directors in mitigating misconduct.
JEL Classification: G30, G34
Suggested Citation: Suggested Citation