The Dark Side of Blockholder Philanthropy

51 Pages Posted: 27 Nov 2016 Last revised: 18 Feb 2018

See all articles by Thomas Shohfi

Thomas Shohfi

Rensselaer Polytechnic Institute (RPI) - Department of Finance and Accounting

Roger M. White

Arizona State University (ASU) - School of Accountancy

Date Written: February 1, 2018

Abstract

We examine the market reaction to charitable pledges by blockholders of public firms. Experimental research suggests that such charity brings benefits, as counterparties grant preferential terms when contracting with philanthropic principals. However, these studies abstract from potential agency problems that could arise if a blockholder’s philanthropy signals a weakening preference for wealth maximization (and is indicative of distraction or relaxed monitoring). We find that these agency costs overwhelm any benefits and are most severe where monitoring needs are high and blockholder monitoring is thought to be strict.

Keywords: Corporate social responsibility, agency theory, philanthropy, blockholder, monitoring

JEL Classification: G32, G34, G14, D23, G02, M12

Suggested Citation

Shohfi, Thomas and White, Roger M., The Dark Side of Blockholder Philanthropy (February 1, 2018). Available at SSRN: https://ssrn.com/abstract=2874060 or http://dx.doi.org/10.2139/ssrn.2874060

Thomas Shohfi

Rensselaer Polytechnic Institute (RPI) - Department of Finance and Accounting ( email )

Pittsburgh Building
110 8th street
Troy, NY 12180
United States

HOME PAGE: http://shohfi.com/

Roger M. White (Contact Author)

Arizona State University (ASU) - School of Accountancy ( email )

Tempe, AZ 85287
United States

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