Disaster Relief, Inc.

Abstract

We investigate the motivations and value implications of corporate philanthropy by exploiting a global sample of publicly listed firms from 45 countries that provide disaster-relief grants to affected communities. We argue that, while in general corporate philanthropy entails agency concerns, the saliency of large, attention-grabbing natural disasters amplifies the strategic benefits of donating.

We find that the returns from donating increase with disaster severity and become positive for firms that rely more on reputation and social image. Returns are also higher for countries with low government relief support, for medium-sized donations, and for in-kind donations. Overall, our results highlight the strategic role of corporate philanthropy, which can lead to net increases in firm value and societal welfare if the strategic benefits of donating are sufficiently large.

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

JEL Classification: G32, G34, L21, M14