Paying by Donating: Corporate Donations Affiliated with Independent Directors
59 Pages Posted: 30 Jun 2016 Last revised: 16 Aug 2017
Date Written: August 15, 2017
Corporate donations to charities affiliated with independent directors (affiliated donations) are considerably larger than director annual compensation and may impair independent directors’ monitoring incentives. We find greater CEO pay and lower CEO pay-for-performance sensitivity at firms making affiliated donations. Compensation practices are particularly poor when the compensation committee chair or multiple compensation committee members are involved in affiliated donations. Moreover, if firms donate to charities affiliated with at least three independent directors, or if affiliated donations are large, CEOs are not replaced for poor performance. The adverse effects of affiliated donations are mitigated by strong corporate governance.
Keywords: Director Independence; Monitoring Incentives; Corporate Charitable Contributions
JEL Classification: G34, J33, M52
Suggested Citation: Suggested Citation