Paying by Donating: Corporate Donations Affiliated with Independent Directors

59 Pages Posted: 30 Jun 2016 Last revised: 16 Aug 2017

See all articles by Ye Cai

Ye Cai

Santa Clara University - Leavey School of Business

Jin Xu

Virginia Tech - Pamplin College of Business

Jun Yang

Indiana University - Kelley School of Business - Department of Finance

Date Written: August 15, 2017

Abstract

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

Cai, Ye and Xu, Jin and Yang, Jun, Paying by Donating: Corporate Donations Affiliated with Independent Directors (August 15, 2017). Kelley School of Business Research Paper No. 16-51. Available at SSRN: https://ssrn.com/abstract=2801817 or http://dx.doi.org/10.2139/ssrn.2801817

Ye Cai

Santa Clara University - Leavey School of Business ( email )

500 El Camino Real
Santa Clara, CA California 95053
United States

Jin Xu

Virginia Tech - Pamplin College of Business ( email )

Department of Finance
880 West Campus Dr
Blacksburg, VA 24061
United States

HOME PAGE: http://finance.pamplin.vt.edu/directory/xu.html

Jun Yang (Contact Author)

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3395 (Phone)
812-855-5875 (Fax)

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