The Dark Side of Blockholder Philanthropy
51 Pages Posted: 27 Nov 2016 Last revised: 18 Feb 2018
Date Written: February 1, 2018
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: Suggested Citation