Disaster Relief, Inc.: When Is Corporate Philanthropy Good or Bad for Shareholders?

75 Pages Posted: 9 Nov 2020 Last revised: 23 Jan 2025

See all articles by Hao Liang

Hao Liang

Singapore Management University - Lee Kong Chian School of Business; European Corporate Governance Institute (ECGI)

Cara Vansteenkiste

Business School, University of Sydney, Sydney, New South Wales, Australia, 2000

Date Written: January 17, 2025

Abstract

A long–standing question in finance is why companies donate to charity, often attributing it to either managerial agency problems or strategic behavior. Based on a global sample of donation announcements by firms providing relief to disaster–affected communities, we test the relative importance of these two motives and the conditions under which each dominates. We exploit disaster–specific factors in an event study setting around corporate donation announcement dates to show that, on average, relief donations decrease returns. However, the strategic benefits of donating around salient events can mitigate these negative effects. To account for firms’ donation decisions, we rely on exogenous variation in the availability of corporate charitable funds due to the timing of disasters relative to firms’ financial years. We show that donations provide new information to the market, and that negative returns are primarily driven by cash donations made via corporate foundations.

Keywords: Natural disasters, corporate philanthropy, shareholder value, strategic benefits, agency costs

JEL Classification: G32, G34, L21, M14

Suggested Citation

Liang, Hao and Vansteenkiste, Cara, Disaster Relief, Inc.: When Is Corporate Philanthropy Good or Bad for Shareholders? (January 17, 2025). European Corporate Governance Institute – Finance Working Paper No. 709/2020, Available at SSRN: https://ssrn.com/abstract=3727329 or http://dx.doi.org/10.2139/ssrn.3727329

Hao Liang (Contact Author)

Singapore Management University - Lee Kong Chian School of Business ( email )

469 Bukit Timah Road
Singapore 912409
Singapore

HOME PAGE: http://business.smu.edu.sg/faculty/profile/130396/LIANG-Hao

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Cara Vansteenkiste

Business School, University of Sydney, Sydney, New South Wales, Australia, 2000 ( email )

New South Wales
Austria

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