Paying by Donating: Corporate Donations Affiliated with Independent Directors
Review of Financial Studies, forthcoming
80 Pages Posted: 30 Jun 2016 Last revised: 10 Jun 2020
Date Written: May 26, 2020
Corporate donations to charities affiliated with the board’s independent directors (affiliated donations) are large and mostly undetected due to lack of formal disclosure. Affiliated donations may impair independent directors’ monitoring incentives. CEO compensation is on average 9.4% higher at firms making affiliated donations than at other firms, and it is much higher when the compensation committee chair or a large fraction of compensation committee members are involved. We find suggestive evidence that CEOs are unlikely to be replaced for poor performance when firms donate to charities affiliated with a large fraction of the board or when they donate large amounts.
Keywords: Director Independence; Monitoring Incentives; Corporate Charitable Contributions
JEL Classification: G34, J33, M52
Suggested Citation: Suggested Citation